Latest / The Promote Podcast / Fugazi First Positions & Cracking Billionaires' Row
Transcript
- Hiten Samtani (00:03) So you know that iconic Patek ad, you never actually own a Patek Philippe? Will Krasne (00:07) ...merely look after it... ...for the next generation. Of course, it's iconic. Hiten Samtani (00:11) So I tried to rewrite it for Billionaires Row Condos. Didn't really work. Will Krasne (00:15) I mean, the things are showing cracks in 10 years. Forget like a generation. By the time the grandkids come, it's gonna fall over. Hiten Samtani (00:30) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten. It's been a wild week in CRE finance with two publicly traded regional banks crying foul about cross-collateralized properties. The drama at Zions and Western Alliance once again show how vital the regional bank network is to the industry's capital markets and how distressing that space can really ruin the whole party. A lot of fraud. Next, we look at Walmart's intriguing playbook. Will Krasne (00:35) and I'm Will Krasne. and fraud. Hiten Samtani (00:59) The retail behemoth is on a mall shopping spree. And finally, there's a literal crackdown happening at one of the country's most prominent supertalls, 432 Park Avenue. Will Krasne (01:09) The gift it keeps on giving, the stories from that building are just tremendous. Hiten Samtani (01:13) never stops. amazing. Will Krasne (01:14) So two emails to know for feedback on this pod, reach us at podcast at thepromote.com or write us a sparkling review on Apple, Spotify or wherever you listen to your podcasts. And to advertise to CRE's insider community, write to partnerships at thepromote.com. And by the way, we say this every pod, but we actually hit number 80 in Apple's business and investing podcast. That CNBC's the exchange. So this is a real podcast. You should really want to advertise on it. Hiten Samtani (01:35) That's pretty amazing, man. We're basically CRE's water cooler and number 80 in 33 episodes. Pretty happy with that, Will Krasne (01:47) And we're not even doing video really yet and we're both very handsome so this is like gonna be rocket fuel. Hiten Samtani (01:53) This is very true. All right. So this is pretty crazy. So we had at Zions Bancorp, which is one of those regional banks pretty active in the CRE markets. We had 60 million dollars of fraudulent loans that were reported. The whole story is pretty bonkers. So where do we start with this one? The couple of banks involved here. Will Krasne (02:10) This one's kind of a riddle wrapped in an enigma, wrapped in a bunch of fraud. So generally when a bank makes a loan, your senior bank debt, that is the safest piece of the capital stack. You are first in line to get paid if something goes south. The only way around that is if there's another bank ahead of you that you didn't know about because the sponsor showed you a fake title report with no liens on it. And that is apparently what happened here. Hiten Samtani (02:24) first position. Will Krasne (02:35) They sent fake title reports to Zions and Western Alliance basically saying there's no liens on these properties. Hiten Samtani (02:42) So it's unencumbered. This is something you can finance or refinance. Will Krasne (02:45) your first position, senior debt, all good. then no one's the wiser if everything goes according to plan. Things did not go according to plan. And Zion goes, hey, they're told like this property is in foreclosure. And they're like, that's kind of weird because we're the lender and we don't have it in foreclosure. ⁓ Hiten Samtani (03:04) So Zion subsidiary, California Bank and Trust underwrote these loans maybe about just under a decade ago. The sponsor group, was called MOMCA Investco, they filed for bankruptcy protection and this led to a planned sale of some of the properties. And then it turns out that there were people, lenders ahead of them. And the amazing thing is that the lenders ahead of them were connected to the sponsorship entities as well. Will Krasne (03:29) Right, this is Nano Bank. The name is Nano. The problems were grande. So the three guys who are part of this, it's Andrew Stupin, Gerald Marsel, and the... We're founding investors in Nano Bank, and Nano Bank alone, the founder, is more than $100 million. And Zion's Bank, for instance, found that one property it had a first lien on, a building in Laguna Beach, the deeds were actually transferred to Nano Bank, which is a problem. Hiten Samtani (03:40) Deba Shyam And then there's this other thing, so MOMCA Invesco, MOMCA Invesco, whatever you want to call it, it started by two guys, Mo Hanorkar and Mahinder Makhijani. And Makhijani, based on that name, is one of my pays on. Sounds like a Cindy guy. They had started this distressed real estate vehicle. And the largest investors in this vehicle were these two guys, Marcel and Stupid. Will Krasne (04:16) Anytime there's like that much related party transactions, it's never really like a good thing. And look, like a lot of real estate people are involved in banks because generally like banks have the money and they lend it. And so if you're a real estate guy, you can get involved with the bank. That's a good thing. Like immigrant savings bank is owned by the... Milsteins. Yeah, the Milsteins. A lot of real estate guys are on bank boards or invest in banks. Like this is like not an uncommon thing. It is kind of uncommon to borrow a hundred million dollars and then go get more loans on the same properties. Hiten Samtani (04:43) You what's also uncommon is when you're fighting with your partner, which happens in real estate a lot, you use armed guards to take over one of the properties. happened between Maki Johnny and the other guy on our Will Krasne (04:52) Yeah, that was amazing. That's the other thing is that had there not been this like partnership dispute where it resorted to violence a little bit like this probably doesn't get on cover. It's kind of like what a self-inflicted wound. Hiten Samtani (05:07) So they have these ugly disputes that just blow up. There's lawsuits filed back and forth in the midst of all this paper trail. The banks figure this out. that, I'm just trying to figure out how they. Will Krasne (05:18) Some of the deals weren't doing well, but like the whole enchilada so to speak unraveled through a lot of these filings So one of the buildings was in trouble and so that was the one I referenced earlier where there was a foreclosure notice and the banks like we haven't foreclosed on it What are you talking about? And yeah through this bankruptcy process a lot of this came out and that's what's so crazy It came out because a lot of this infighting guys like if you're committing fraud like don't take each other to court It's like Strenner Bell Hiten Samtani (05:44) taking notes on a criminal fucking conspiracy? What the fuck is you doing man? This wasn't restricted to just Pura Zayon's bank. The same thing pretty much happened with Western Alliance, which is another very active regional bank in the CRE markets. Will Krasne (05:59) Right. And I think that was like supposed to be a hundred million dollar line of credit for them to like draw down and buy stuff on and assuming they had first lean on it and they did not. Hiten Samtani (06:08) Basically what happened was they took loans with part of this portfolio pledged as collateral, but the properties that were pledged as collateral were already in foreclosure. Yeah. Will Krasne (06:16) So that's bad. ⁓ That's not good. Like, don't do that. Especially if you don't do that, don't then sue your co-conspirators. So why are we talking about this? Like, obviously it's a very fun story. Well, not fun for bank investors. These regional banks are sort like the lifeblood of commercial real estate finance because they are the local folks who like write the construction loans and do a lot of like the smaller mid-market transactions. Hiten Samtani (06:39) One signature bank melted down in New York. It was Panic City for a long time. We're seeing the aftermath of that meltdown play out all across the market right now. In the West Coast, what do we have? Our First Republic. Yeah, everyone's lamenting the loss of First Republic and the good old customer service and all that. mean, those two banks were as important as anything you can think of. Will Krasne (06:51) yeah, first Republic, yeah. Yeah, and people are talking about like how this wave of supplies like tapering off and like a lot of it is because these banks aren't lending. And so you've seen, when you've seen fraud, when you've seen a lot of these people think systemic contagions, like the smaller banks are the ones that get rolled up. Hiten Samtani (07:13) I'm so glad you brought up that word contagion, because that is the thing, right? The way that I think about it is like, if enough people who are important say that the house is on fire, the house actually catches fire. Will Krasne (07:24) We about this all the time. The vibes are everything. The vibes can shape reality. Hiten Samtani (07:27) When this regional bank crisis happened, there was a big void left over. And then this is when all these private credit players kind of upped their game as well. And they've taken over a big chunk of that business. Will Krasne (07:36) We're talking about $60 million worth of bad loans at Zion Bancorp. I think the market cap of that bank is like $7 billion. Hiten Samtani (07:42) You said the word market cap. you know how much market cap they lost after they disclosed this? What? A billion dollars. ⁓ When you see these kinds of things, I think the whole idea is that if this kind of egregious fraud is not coming out right away, if it's not being stamped out right away and it's got to this level, what else is kind of lurking under the hood? What is the tip of the iceberg? Whatever crappy metaphor you want to use. Will Krasne (07:47) 20 % of it. When you think of like real estate investors a lot of times, you think you're like very savvy, tons of systems. That's not the case for the vast majority of. Hiten Samtani (08:13) I mean, we're going to talk about one of them in a little bit. Will Krasne (08:16) Think about like what it takes to get financing like it's not that much like we've talked about this with like the same PFS being able to see if you like sign recourse or put up your balance sheet They'd run a title report, but you can sort of help finagle that we like Hiten Samtani (08:22) indicator. to say that real estate is probably the largest and most important mom and pop business there is. Will Krasne (08:34) Yeah, I've gotten loans from a bank where at closing they asked me if I wanted online banking. Hiten Samtani (08:39) When people think of big city real estate, et cetera, they forget that a lot of the lending sources for these guys are far flung community banks, right? Bank OZK is such a major player in the construction game right now. But there are banks that are a fraction of the size and sophistication of OZK that are applying their trades and shaping skylines through the deals that they do. But again, these are very much like good old boy situations. Will Krasne (09:04) Yeah, I mean, and a lot of this too is mutually beneficial because if you're a small bank and you're a loan officer, like it's hard to find deals. If times are good and you're not sort of a brand bank and you don't have, you're selling money, it's a commoditized product. So if you find someone who's going to take your money and do a lot of deals, like that could be really profitable for you. There's a lot of incentives to like look the other way. I know the story of this guy who went tits up in the great recession. He ended up like getting indicted, all this stuff, but in the indictment. They flagged an email where he sent a draw request to his lender saying, need a million dollars to pay bar tab. And the lender just goes, okay. And like filled it, like didn't send invoices or anything. Like that's a real thing. The point being like banks are really regulated, but individual loan transactions aren't necessarily like super well-diligents. And you can end up with stuff like this. Cause how can you, if you're a $7 billion market cap bank, you should be able to know if someone else's That's not too much to ask. Hiten Samtani (10:03) Yeah. And also what happens is when these cases happen, these headline cases that when things get this bad, the regulation kind of comes in pretty hot and then puts a damper on the whole market, almost an overcorrection. Will Krasne (10:14) What happened with Dodd-Frank, that's what happened with the new capital reserves, the loan loss requirements. For construction loans now, it makes it hard for smaller banks to do it because you have to reserve so much capital and you're balance sheet against it. And that's why we're seeing bank consolidation all over the place. I think regulation is a thing in general, but we're making it so the thing we're trying to prevent is what's going to happen through all this regulation. Hiten Samtani (10:20) Puzzle four or whatever, yeah. Do you know my boy Rebel Cole on LinkedIn, the finance prof? Rebel Cole is a super cantankerous finance professor who puts together these really great analyses from call data, publicly reported call data on bank exposure to CRE. And every time something like this happens where there's a major crisis, this guy's probably in his seventies or eighties, he puts that wave of distress graphic on his LinkedIn. It's fantastic. Will Krasne (10:42) I do not. love it. like we're going to take away a huge source of financing and like what's going to fill it. Maybe, you know, Athene ends up doing like, you know, six million dollar build the suits for like a dentist, you know, and Hiten Samtani (11:27) find a way to roll that up into some new vehicle that they can charge some crazy retail fees. You can see that happen. Will Krasne (11:33) we're really gonna have to standardize title financial reporting to make sure that it's not fraudulent because I'll tell you this too, the way you upload financials to each lender is not standardized and a lot of times they will take your Excel or your PDF and for a lot of loans, you're really relying on the honor system in some cases to what goes below the line, what goes above the line. Hiten Samtani (11:55) And to that point, think just more broadly, there was a big article, I think, in Bloomberg about the rise of hard money lenders and how some of these lenders will not apply their trades in Baltimore, other markets that have, let's say, a concentration of such questionable activity. Will Krasne (12:10) Right, because these two guys took all these fraudulent loans and just they borrowed a ton of money and like didn't renovate the properties and just took it. Hiten Samtani (12:17) I don't want to be too Cassandre about it, but in all this great wave of standardization that we're alluding to, there's going to be a lot of opportunity for companies who figure this out, right? Imagine going to frigging some regional bank in Utah and saying, okay, this is the way we're going to have to do things. But I imagine that at some point the regulation will require it and that's going to be pretty big opportunity for the right company. Will Krasne (12:41) borrowed from a lot of these like smaller community banks and whatever and they're like, oh, we use Encino now. we know we're, I mean, so that company, I don't know what Encino's market cap is, but like that went public. There's going to be a ton of opportunity here, but it's going to clamp down on a lot of these people. Cause sponsors like if you're not a professional real estate, a lot of real estate is done by not professional real estate people. And it's a lot to expect them to have like super standardized financials, super clean financials. And a lot of the other precautions that like a professional real estate group would have. This could be just more debt funds. These guys actually came to New York. These guys, Canter. they bought stuff. Yeah, so a Canter group, which is like, again, these guys are all an amalgamation of each other. They bought a deal in 2019 from a guy who went to prison for six years for running a Ponzi scheme. They bought it for 38 million. Hiten Samtani (13:17) Who? New York for what? they own a bunch of stuff on the upper east side. That's the way you gotta do it. Will Krasne (13:36) got a $29 million alone. bought it at REO from Preferred Bank, which I think is a big bank that caters to Asian real estate investors. Then they refied it in 23 and then tried to sell it in 2024 to the Swiss group. And the Swiss group was like, they refused to close. And like we had the money in escrow and like they wouldn't close for whatever reason. So this whole thing like stinks. Cash going back and forth between these groups is pretty sketch. Hiten Samtani (13:59) I'm a little disappointed in you, You didn't use the word sleuthing. Will Krasne (14:03) It's loosing, ugh, I'm losing it. Hiten Samtani (14:08) We want to tell you about the Promote Insider. That is our new premium tier. And listen, if you want to go even deeper down the CRE rabbit hole, this one's for you. Will Krasne (14:16) think expert columns from practitioners deep in the mix like moi, capital stack breakdowns, first dibs on events. Yes, we're going to be live in person. soon. And bonus episodes of this podcast. Hiten Samtani (14:29) That's right, plus a whole new interview section and so much more. Founding membership start at $240 annually. That's 20 bucks a month. Go to thepromote.com slash upgrade to get started. That's thepromote.com slash upgrade. I used to date a girl who hailed from Appomattox, Virginia. The highlight of that town is a Walmart. Like the entire life of that town is... What are you talking about? No, the Civil War thing, no one cares about anymore. It's all about the Walmart. I'm telling you, the Walmart is just the main attraction. I think these super centers are such a dominant force in the cities that they're in. They're what on average 180,000 square feet. Will Krasne (15:08) general wheeze ⁓ Chris Cagle has a song called Walmart parking lot. Obviously one of the biggest companies in the country and they've really made their name by going to these smaller underserved places. Hiten Samtani (15:31) When you basically put a Walmart into one of these towns, you activate the entire town in a sense, Will Krasne (15:37) Well, I mean, you kill all the local retailers. Correct. Hiten Samtani (15:39) Yes, activate as a maybe a euphemism for what could happen. So because of that, because of the kind of the impact that a Walmart has when it comes in, everything from traffic to, you know, killing the local competition, there's often a lot of backlash when a Walmart tries to get into a spot. Will Krasne (15:57) And the places that can really like activate the backlash are the urban centers that are more affluent. And so Walmart has had a trickier time getting one that is their footprint because they're such a logistics heavy company. They need like all the space and the stores like their delivery is done a certain way. Like for instance, like I was looking at an industrial building that has a packaging company that services Walmart and they're like Walmart doesn't stock anymore. They only want the pallets and then they want to take a knife and like cut it open and then throw the thing on there. The point being They need that real estate, but it's like hard to find that real estate in like Dallas. As you said, a lot of backlash when they want to come into those types of places. So like, what's one way to avoid the backlash? By the whole damn thing. So Walmart has spent over a million dollars buying malls this year. Hiten Samtani (16:36) buy the whole damn thing. Malls, like actual shopping malls. ⁓ Will Krasne (16:45) actual shopping malls in the year of our Lord 2025. I love the smell of morning. So they generally own most of their stores like within existing malls. So it's not real estate ownership, not crazy for them, but like buying whole malls is. Hiten Samtani (16:50) This is not commerce in The example that jumps out is the one in Monroeville, right? They had tried to go there in 2005. The community said, no, you can't. We're not going to have this happen. This is a community of about 30,000 people. So they come back 20 years later and they just buy the mall. They buy that mall and they're going to reimagine it now. So it's not going to be a traditional Walmart in the sense there's going to be, they're kind of using the terms curated retail experience, which will include a Walmart, include a Sam's club, have entertainment options, maybe even a bowling alley. Will Krasne (17:28) I mean, is the bowling alley is the Walmart equivalent of the LVMH handbag. Hiten Samtani (17:34) Yeah, it totally fits the brand. But they would basically control slash curate the entire retail experience as opposed to just have that mega store that we think about. Will Krasne (17:43) High as a new trend we're seeing really across office, we've talked about a bunch of retail where people want to own their own space and like curate it themselves. And so we've seen a lot of owner user buyers in the office front. We've seen a lot of owner user buyers in the retail front too. Hiten Samtani (17:56) This is all across the super high end locales like Beverly Hills, what LVMH is doing, what Prada is doing in Manhattan. This is happening all over. Will Krasne (18:04) This isn't taking one of the corners on 57th and 5th. There's more than four corners in Monroeville. But it was the way for Walmart to get in. They tried to do this forever, and then it's like, know, in the rock. Green smoke! They did it. They're in. They don't have to ask for planning permission, and they're just going to buy the malls and do it that way because they're not doing ground up. A lot more of a streamlined process. And it is also a way to figure out how to operate their model in potentially less square footage or in tighter confines. Hiten Samtani (18:31) They're not trying to run this process entirely in-house. They've tied up on a couple things with Cypress Equities. So they're leaning on someone who has a lot of experience in this style of broad-based retail master plan development to get this done. Will Krasne (18:46) But so why is Walmart doing this? And this is one of the things I love about real estate and why I love doing this podcast. Like every business story is a real estate story because Walmart, like where are they going to grow? They have to have more penetration. That's the way for them to grow. And so it's like how are we going to choose the stock price? Hiten Samtani (18:59) think at some point Walmart's gonna be competing with Namdar and the other bottom feeders. Will Krasne (19:05) Probably not, because I think they want like slightly higher quality stuff that doesn't have holes in the parking lot and has paid their property taxes. Walmart is logistics behemoth and really grew their company by becoming like this vertically integrated machine. Now they're sort of doing that on the real estate side as well. Hiten Samtani (19:30) All right, Mr. Patek. So 432 Park Avenue, we've talked about this building quite a bit. Everyone's talked about this building quite a bit. But again, it's one of those things that's just continuously replenishing in narrative. It's amazing. To set the stage, Harry Macklowe and CIRM Group developed the Super Tall Tower. It was the tallest residential building in the Western Hemisphere. When it came along, it's one of the most prominent of the early batch of billionaires row towers. Will Krasne (19:55) for those who've looked at the skyline and aren't sure which one it is, it's the one where the architect admitted that it was inspired by trashcan. Hiten Samtani (20:00) What the architect admitted was that this building has a couple of screw ups. Yeah, but it has integrity. That's what Rafael Vignoly, rest in peace, said about this tower. Will Krasne (20:09) We could do a 666 Fifth Avenue style pod just on 432. Broad strokes for those who aren't quite as familiar. So Harry, coming off the biggest success of his career, which was the refinancing of the GM building, where took out James Nance, I got his pref. So he owned the GM building free and clear and took out like a billion dollars liquid. What's a guy like that gonna do? He's gonna spend $400 million buying the Drake Hotel just up the street. And he's set about doing the most audacious development of his career. Hiten Samtani (20:35) something really great. Will Krasne (20:39) ended up getting wiped. Hiten Samtani (20:41) On the top of this podcast, we talked about mom and pop accounting when it comes to real estate. This is the guy. This is like the quintessential mom and pop operation. Harry Macklowe. Will Krasne (20:50) You can go down a rabbit hole with him. He also still has like amazing case studies on his website. Go check those out. Hiten Samtani (20:55) We'll drop a couple of them in the show notes. Amazing little details about the business. So Harry Macklowe was sitting on 432 Park Avenue's development site. It's a prime, prime, prime site, but he finds himself weighing the red on it. So who comes in? Structure is alpha, Parachuted. Will Krasne (21:10) CIM. They parachute in from LA, structure is alpha, and give MacLeod basically a hope note on the equity and finance this tower. Hiten Samtani (21:22) Very successful tower in the beginning. I think they cleared $2 billion in sales. The priciest unit was something like $88 million to the Saudi retail titan. Pretty astonishing pricing. Will Krasne (21:32) Yeah, and CIM I think did phenomenally well there too because they structured an incredible deal. Anywho, later, Macklowe was getting divorced and put up a billboard of him and his mistress on 432 Park Avenue as well. And honestly, he may have done that kind of crazy like a fox because it hid the cracks in the side of the building. Hiten Samtani (21:57) This is what we're primarily focused on today. there's been a lot of coverage. The New York Times has had multiple front page stories and all the problems at 432 Park. Apparently when you throw the trash in that building, sounds like a bomb's going off. Will Krasne (22:14) They didn't angle the trash can so when it goes down to the floor it doesn't like slow down. just like drops. Hiten Samtani (22:19) straight vertical limit. So there's a lot of coverage and we'll put some of the show notes about just the downsides of living in a super tall. But these allegations, the ones we're going to talk about right now are far more serious. What the condo board is alleging is that the developers knowingly concealed structural problems in this building. We're talking about actual cracks in the fricking building, cracks in the facade. Will Krasne (22:43) I think the quote was deliberate and far-reaching fraud, by not disclosing cracks in the facade that could pose real structural dangers down the road. Hiten Samtani (22:50) One structural engineer advised them to hold, quote, hold the poor on the concrete and they disregarded it. Yes. We should obviously say these are all allegations made in the suit. CIM has vehemently denied all these allegations and says ⁓ that the condo board doing this is disastrous because it's going to backfire and it's going to create our property values. That being said, these allegations are fucking crazy. Will Krasne (23:13) And the details too are insane. So like Harry Macklowe who notably not a concrete expert. Hiten Samtani (23:19) But his aesthetic expertise cannot be questioned. Will Krasne (23:21) You the building to be pure and you wanted it be a certain color. It had to be white, which apparently is like really hard for concrete. Hiten Samtani (23:28) to maintain the integrity of the white, you have to basically compromise the mix. Will Krasne (23:34) I feel like ⁓ blackout Gatling in ⁓ Little Big League when they're doing the math problem. Hiten Samtani (23:41) Why don't they just get a house that's already painted? You know, maybe there is no answer. Maybe it's one of those trick questions. Will Krasne (23:47) Why don't you just paint the concrete white afterwards? That joke was for like one person and I'm really glad you got it. Maclau, not a concrete expert. So he's like, let's use this invisible sealant and Hiten, where did he come across this? Hiten Samtani (23:52) They're gonna love you for it. So Mr. Macklow has had, he's prided himself on having a wide variety of inspirations, right? This color, he had seen it and he was very intimately familiar with this color because it is the color on his racing yacht, Unfurled, which we've talked about before. So he's like, listen, this sealant is good enough for Unfurled. It's probably good enough for a thousand foot plus tall skyscraper. Will Krasne (24:26) sailing in the Adriatic is similarly challenging as building at supertall. Hiten Samtani (24:32) It's the price you pay, Will, for absolute purity. The New York Times had a new front page story on this whole saga. The court filings, they have included emails that go like this. One of the development team's own engineers, Mr. Marcus, sided with consultants who had endorsed more inelegant coding, even though it could, quote, have appearance impact. You are not being at all helpful, Bill Unger, a senior member of 432 Park's development team. shot back in an email. Honestly, I prefer to disappoint today rather than installing something that even the manufacturer has doubts will work. Mr. Marcus replied. So it's pretty good back in the. Will Krasne (25:12) Again, like kids, can't subpoena air. Just pick up the phone, call the guy. But they were finding cracks like during construction. Like this is not something that just came about in the last couple of years. This has been an issue essentially since the tower was stood up. Hiten Samtani (25:30) I used to live in Toronto and as I was about to leave for New York, a lot of my friends started buying these shiny condos. And at the time we thought these were the coolest things ever. were gorgeous. Toronto famously has incredibly shoddy construction standards. So when I was in New York and I'd go back to visit these same friends, they were like, the glass is falling off of the facade. And this had been a handful of years, right? So take that and extrapolate it to these incredibly giant towers in Manhattan, which is the most complex and expensive place to build. The whole idea is when you're, when you're developing for sale units, I think there's like a original sin in there. You're kind of incentivized to cut corners and move on because everything, and we've talked about this a bunch on this podcast. It's all about creating that illusion of desire and brilliance with sales velocity right at the beginning though. It's like that 18 month, 24 month. Will Krasne (26:20) and scarcity. Hiten Samtani (26:25) three year period where you're selling everything that everything has to be perfect. But once you've sold it, it's the other guy's problem. Will Krasne (26:32) Yeah, and two, when you're building, this is different than building a 10 unit condo building in Park Slope. If you could build in Park Slope, if they would let you. But I think there was an elevator consultant who had a really insightful take on this. Hiten Samtani (26:46) yeah, I thought he was a great this is the best take on it. Yeah, go ahead read that Will Krasne (26:49) Yeah, and he said, once you get over 40 stories, every one of these towers is a prototype. You don't have repeatable results because the shape of the building changes the performance. And that makes a lot of sense. Hiten Samtani (27:05) Let's go to Formula One for a second, right? Like any tiny tweak in the shape of the car impacts understeer, impacts everything, right? So basically it's the same principle, but way high. Will Krasne (27:16) are the corners rounded, like where are the mechanicals? And they were saying at 432, every certain number of floors, they had vents so like the air could go through so it wouldn't like make the building shake. like, no one had done really that type of construction before. The other part too is like, it's one thing if you're building a massive supertall on a giant piece of land that is like, has a lot of base support. 432, that site is so thin. Hiten Samtani (27:40) Yeah, what are the height to width ratios on these things? They're crazy. Yeah, like look at 111 West 57th, which I believe is the skinniest of this generation of towers. mean, like, there's no room whatsoever to fuck up. Like you have to be really honk. Will Krasne (27:54) Again, like no one's ever done this and like it's not a surprise that there's been like construction is taking forever on all these things Hiten Samtani (28:00) So there's the engineering intricacy and complications that come with it. I think one of the other things that we haven't quite talked about as much is like capitalizing these towers. These are multi-billion dollar jobs isn't easy, right? Sometimes you're flush and sometimes you're broke in the construction phase as well. Right? So there may be times that you feel like you want to do everything right and check all the boxes that you need to check. And sometimes you just have a limited pool of cash in your construction account and ⁓ maybe you don't do what you're supposed to do. Will Krasne (28:28) Yeah, it takes what it takes. It's a little scary if you're VE-ing a building this tall, but like that's what happens. Hiten Samtani (28:33) I mean, that's precisely what it is. I think there was another structural consultant who said something equally insightfully said, it's the way that development operates in New York. The people who put up the buildings are not accountable for their quality. As long as problems don't crop up before they unload the property, they can do whatever they want. Will Krasne (28:52) If there are issues at this building, do think they want to sue 432 Park Mez owner for LLC? Like, go for it. Like, there's nothing in there. Hiten Samtani (29:05) I think of it as like the Kitty Genovese effect playing out in super tall skyscrapers. Like there's so much diffusion of responsibility in these buildings, right? There's the developer, there's the GC, there's all the subcontractors, the subs have subs, right? Who fucked up here? Who's really to blame? Who can tell? Will Krasne (29:22) I would say it's the guy who's like, use what I used on my sailing yacht to seal this building, but you what do I know? Hiten Samtani (29:28) Well, I thought New York was gonna bail him out Will Krasne (29:30) Yeah, fair enough. Sometimes you win, sometimes you lose, and sometimes it rains. And ⁓ our stories really had a lot of rain this week. between the mortgage fraud and cracks in the Supertall building, we'll try to keep it more upbeat next time, but that's the... ⁓ Hiten Samtani (29:49) Hey listen, we've had plenty of triumph on this show. Sometimes you need a little bit of disaster to balance it out. Like Kipling would say, you know? Will Krasne (29:55) That's true. Fair enough. If. Hiten Samtani (30:04) That's it for the Promote Podcast this week. We'll be back next week with more CRE insider goodness. Well, it's a pleasure to see you back in the pink of help, ⁓ Will Krasne (30:13) Thank you, I am glad that my ulcer is healing. Hiten Samtani (30:16) I'll see you next week. Ciao. Will Krasne (30:17) Ta-ta!