Latest / The Promote Podcast / Limit-Up Hotel Kamikazes & AI's Brokerage Rout

Transcript

Limit-Up Hotel Kamikazes & AI's Brokerage Rout · The Promote Podcast

• Hiten Samtani (00:03) When Anbang bought the Waldorf Astoria, it appeared as if they could look-smacks it and ascend to the land of high returns. Definitely, you're not my type. I'm hoping enough of you guys get that. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani. Will Krasne (00:31) and I'm Clavicular, Will Krasne Hiten Samtani (00:35) A shout out to our sponsors, Loan Boss, a best-in-class CRE debt management software. Will Krasne (00:39) and Bravo Capital, a leading HUD and Bridgelander. Hiten Samtani (00:43) This week on The Pod, the Waldorf Astoria is on the market, but it might be a day late and several billion dollars short. And AI is killing the Brokert star. Or at least that's what the public equity market believes. And we might have just found the new worst landlord in the country. Will Krasne (00:57) man, that guy's pretty bad. Let's get started with the punch list, our signature rundown of the newsiest news in CRE. Hiten Samtani (01:08) corporate &A, this time at Sumitomo Forestry, not to be confused with Sumitomo proper, but they're taking down Tri-Pointe Will Krasne (01:15) This is something we talked about ad nauseam about corporate ⁓ &A, buying wholesale in the public markets and selling retail in the private markets. So, I'm going to get this wrong every single time I say it. So just bear with me. Sumitomo. Sumitomo forestry has taken out TriPoint, the publicly traded home builder, and they have been buying a lot of home builders in the U.S. over the past three, four, five years. Hiten Samtani (01:23) Big topic of discussion just last week for us. Mito Mo forestry specifically. Will Krasne (01:44) So Dan Ryan Homes, which is now DRB, they have a handful of others. They're now trying to sell 30,000 homes a year in the United States, which is a pretty big number. Hiten Samtani (01:53) This is the confluence of two trends. One is the Japanese giants facing a declining population back home are targeting the US for kind of greener pastures, buying up a bunch of companies. had Sekisui House bought MDC Holdings for close to five billion and to take private early 24. Daiwa House put in a big chunk of money into Alliance Residential. Will Krasne (02:16) So Sumitomo, they bought Crescent Communities, which was at the time the 20th largest multifamily developer in the country. They had Southern Impression Homes they bought in 2023. And that's a build to rent developer. So this is a pretty big trend. Charpentier is a pretty big company. Four and a half billions, no joke. Hiten Samtani (02:35) Sumitomo Forestry is about a $6.6 billion market cap, and they're taking down something not too dissimilar inside. Will Krasne (02:42) You know what they say, there's no such thing as a merger of equal Hiten Samtani (02:45) That's right. As I was saying, it's kind of a confluence of the Japanese coming here and the whole broader AUM gobbling trend that we've talked about. It's a shitty time to be a REIT. So if you're a REIT, you have basically a couple options or three options. You can rail every earnings call about how you're not being fairly valued, right? You can go and sell to a bigger company or you can liquidate your properties and dissolve, which is what we're seeing with AIMCO and others. Will Krasne (03:08) Yeah, and again, these things are all math. When you're trading above NAV, you issue stock and buy things. And if you're trading below NAV, those are really your options. You have to be a management team with a lot of credibility to not have someone come after you and try to liquidate. Hiten Samtani (03:24) Speaking of management teams, love this line in the announcement that they had, Sumitomo Forestry has a proven track record of respecting continuity and the autonomy of local leadership. Basically, heads aren't going to roll is the promise they're making here. Then speaking of more AUM gobbling, Naveen, which I love this, by the way, when the FT did the story about Naveen and Trotters, it was a profile of a little known Naveen. Will Krasne (03:46) Yeah, it's like what is Nuvine and why is it buying Schroeder's? If you didn't know where the FT was headquartered, that headline will kind of tell you. Hiten Samtani (03:53) This is creating a $175 billion real estate manager, is that right? Yeah. Schroeder's is like a blue blood name in the UK. It was founded during the Napoleonic Wars apparently. So good. Will Krasne (04:08) Brown Brothers Harriman with bangers and mash. Hiten Samtani (04:11) If we don't respect the past, we'll find it harder to build our future. So why are they doing this? There's a great quote from the Nuvine CEO who sets my Spidey senses off, but one plus one is equal to five for the future is what Nuvine CEO Huffman said about this deal. Will Krasne (04:25) When you're talking about red flags, it's the biggest red- Hiten Samtani (04:27) I love this other thing they said, which is nowadays in active management, you need to be in the $2 trillion club to make it all worthwhile. That's a pretty staggering, we talked last week about Konertesky being the now steward of Brookfield's Gold to go from $1 trillion to $2 trillion. And this is just seems to be the big number now that everyone's talking about. Will Krasne (04:47) It's kind of mind boggling the scale you need there. And what's interesting is you think about two trillion. I mean, I don't know what Vanguard has, but you can look at the fee load on those. And they're obviously very, very low for their ETF and passive products. here, Nuveen has a big private markets business and Schroeder's has like global distribution. But I guess their idea is we'll just plug in the Schroeder's name with the Nuveen private market fees and... Juice them up. ...sail away, sail away, sail away. Hiten Samtani (05:15) All next one. All you wrote here is Adam Newman punching people in the Will Krasne (05:19) Any time Adam Newman a story comes up we are contractually obligated Hiten Samtani (05:23) It's part of the promotes bylaws. Build something that you love, build something with intention, and the money will fall. Will Krasne (05:28) This story is just fantastic. What was his wife's thing used to be called? Yes, and obviously with the WeWork implosion, the We- Yeah, it became bad. So what's it called now? Hiten Samtani (05:32) We grow. The brand kinda became toxic, It is now called Soulful S-O-L-F-L. Student of life for life. Will Krasne (05:49) Fantastic. And so he's knocking down a church to build this school. I think someone in a community meeting says, feels like we're getting punched in the face. Adam is not known as a guy who really asks for permission. He's more of a beg for forgiveness type of person. he bought the property five years ago and initially I think wanted to turn it into mixed use. So office, retail, some restaurant. And Soulful was trying to renovate the church into a school. Hiten Samtani (06:17) I can't hear that name without laughing. Will Krasne (06:20) Sorry. They were trying to renovate it because they thought, okay, this will be a good space for it. We can plug it in here. And, know, Adam is no stranger to non-arms length real straight transactions. But apparently it was more cost effective to demolish and rebuild the church. So we just demolished it. Didn't really ask for permission. Hiten Samtani (06:29) This is correct. It's quite perfect. All right next one This one is probably my favorite of the lot. Kimco is looking to sell about half a billion dollars of assets. They've had an overall very stellar year. I think they've had record occupancy in their portfolio, but now they're looking to cut the fat. And the amazing thing is here, they're essentially describing it as lard. Will Krasne (06:57) it's so good. I always wonder about this is that when someone buys something and they have to divest, I think the one that comes to mind is when Disney bought Fox and they had to sell off the RSNs. It's like, everyone knows that they have to sell. So like, what's your leverage as the seller? And Kimco, I think, got rid of all of their own leverage because they said, we are crushing it. We're doing amazing, the best. And he goes, but we're going to sell off some low growth garbage and a bunch of detritus. So if anyone wants to take it off our hands, godspeed. Hiten Samtani (07:28) A listener should be aware of what Will said is accurate, which is basically they're dumping their unwanted stepchildren, right? But the way they frame it in an earnings call would be as follows. Lower growth, multi-tenant centers and non-income producing land and entitlements. Will Krasne (07:41) Right. When you're pruning the portfolio, you want to convey to the market that, the stuff we're keeping, we're going to be more pure play, higher growth, all that. Because the market's going say, well, if you have stuff that's really good, why are you selling it? Yeah. So you have to say it's also, it's bad, but not that bad. So you really got a very narrow window to slide it in there. Hiten Samtani (07:45) There's upside, there's something to be done here. All right, last one. This is fascinating to me because we've talked the licensing wars, right? An agency license is one of the most coveted assets you can have. Fannie licenses in particular have been quite liquid. There've been a bunch of trades at some pretty high numbers. And guess what? When third parties are trading licenses among each other, Fannie's not really wetting its beak. So now it's looking to change that. Will Krasne (08:27) Fanny's saying a nice transaction you got there. You'd shame if something happened to it. Unfortunately, this is part and parcel with the administration doing this across all types of assets. Hiten Samtani (08:42) We saw this with the Intel, like the mega transaction, right? Will Krasne (08:44) ⁓ Intel, US Steel, government overreach rearing its ugly head once again. I'm sure, I'm sure that all of these small government Hiten Samtani (08:54) We'll stand up and yeah, make a big stink about this. Absolutely. Will Krasne (08:57) Yeah, everyone on Twitter who's he loses their goddamn mind anytime the word wealth tax comes up I'm sure they'll have a lot to say about The most intellectually honest Hiten Samtani (09:04) ⁓ yeah, they'll be totally up in arms. This is a pretty staggering fee they're looking to levy. So they're talking about charging up to $25 million for trade. And these licenses, depending on what comes along with them, the MSRs, et cetera, can go for anywhere between $100 and $130 million. And the amazing thing here, Will, is that they're trying to apply it to an in-progress deal. We talked a little while ago about fifth, third, buying the Home Street's mechanics license for about $130 million. And so if you levied a $25 million... surcharge on that that's 19 % that's pretty staggering. Will Krasne (09:40) like you used booking.com to erase this transaction. Hiten Samtani (09:44) I was thinking Ticketmaster, but you're exactly right. You're putting a dent in the liquidity of the market because you're putting this massive question mark on any future transaction, Arbitrary license fee, any point being enforced, coming out of nowhere. The licenses are going for a lot of money. It's a very coveted asset, but I think something like this could box out a lot of smaller buyers so that just the bigger lenders again can profit off of this thing. Will Krasne (10:08) A very smart guy wrote in this newsletter that I read all the time called The Promote saying that the licenses can be worth a lot more to one lender versus another. And that's exactly the case here. And if you're adding this fee on again, to your point, like you have to have a certain scale to be able to sop up that additional cost. And you have to have a lot of other businesses that are going to benefit from getting this license. can't just buy it for shits and giggles. Hiten Samtani (10:32) Alright, that's it for the punch list. When we come back, we'll be talking about the Mona Lisa and village girls. So, Will, you violate any dead covenants recently? Will Krasne (10:49) So funny you should ask. I have been in technical default recently. I mean, who among us? Right. But not since Q4. Ooh. And that's not because I paid off the loans, because that's when I started using Loan Boss. Hiten Samtani (11:02) I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that. Will Krasne (11:07) Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cashflow forecasting, impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve and then it's always vertical and you gotta alt HVT to have it go horizontal, make sure the index match works, like ridiculous. Hiten Samtani (11:31) They just got it sorted here for- Will Krasne (11:33) Much better. So thank you, Lone Boss. Hiten Samtani (11:36) Listeners, check them out at loanboss.com That's loanboss.com. And tell them the promo sent you. What does the story not have? Where do we start? Should we start with the quote? Should we start with the boy who could? Should we start with Deng Xiaoping? Where do you want to start? Will Krasne (12:04) We need to go back, back to the beginning and start in provincial China. Hiten Samtani (12:12) Provincial China, this is a port city. Ningbo. Ningbo. Ningbo and Wenju, which is where our protagonist Wu Xiaohui cut his teeth, is famous for its financial speculators. And I think this is the greatest term that I've seen in business in a long time. Will Krasne (12:29) limit up kamikazes. Hiten Samtani (12:33) Limit up kamikazes. What the hell is that? Basically, fast and loose, doing the thing. Wildcatters is, I think, what we would say here in the US, but man, limit up kamikazes is so much cooler. Will Krasne (12:37) god. It's basically every character in Landman. It's perfect. I love it so much. And really, limit up kamikaze is what this guy did. Hiten Samtani (12:53) Exactly, yeah. I think when you grow up in a place, you do imbibe some of the place's vibes, right? From Dubai, I'm a little swaggery and bombastic sometimes. It's kind of in my nature. Mr. Wu here, Wu Xiaohui, was with someone who dreamt really big and wasn't afraid to take outsized risk, use a lot of leverage, and build his company into a behemoth. So Wu Xiaohui is obviously the founder of Anbang Insurance. It started off as a pretty modest, what, car dealer? Will Krasne (12:59) 100 % Hiten Samtani (13:27) 500 Redmond Bees. And so this guy just kept growing and growing and growing, eventually started an insurance company that became a conglomerate and then just at some point he was one of the biggest companies in China. Astonishing trajectory of growth here. Will Krasne (13:43) He also did the most important thing to becoming a great investor or business person, which is marrying well. You can marry more money in a minute than you can make in a lifetime. Hiten Samtani (13:50) Yes, exactly. And in this case, wasn't just money, it was political juice. So, Wu Xiaohui married the granddaughter of Deng Xiaoping, former Supreme Leader of China, one of the most influential men in the history of that country. Will Krasne (14:06) you would think that puts you on a very good trajectory, which it did for quite some time. Hiten Samtani (14:11) Until the guy got a divorce, mean, this... Come on, man, figure it out. was 2015 is when he split up from his missus. That was the beginning of the end, so... Will Krasne (14:19) You gotta be like a penguin if you're doing a marriage like this you meet for life Hiten Samtani (14:23) Exactly. So, Anbang Insurance, one of the biggest companies in China. We've talked extensively in the newsletter about this big wave of Chinese capital that came flooding into the U.S. prime market, I want to say in the mid-2010s. Will Krasne (14:35) This was a paradigm shift for all these trivia. Hiten Samtani (14:38) bought everything, like billions of dollars of assets top top. Will Krasne (14:42) They would buy the best of the best. Prime office buildings, not just like full service hotels, but like the best full service hotels. Hiten Samtani (14:49) They're part of this wave H &A group, one of the other big ones. Dali and Wanda, better known for its jump into the movie and entertainment business. I believe they bought Legendary. But these were some of the biggest companies in the space. Anbang was definitely one of them. Will Krasne (14:59) about Legendary from Thomas Tull. Waldorf story here. And then they also bought Strategic Hotels, which was a public company that they took private, which owned some of the best hotels across the West Coast. Though they left out my favorite hotel. Hiten Samtani (15:16) Have you been to the Hotel Del Coronado? Of course. The reason that it was taken out of the trade was CFIUS, which is the committee that vets foreign investments in the US, said, no, you can't have this one. It's too close to Naval Base. Will Krasne (15:29) James Reese, the guy that Chris Pratt plays in the TV show. lived on Coronado Island because he was at the Dev Guru right here. Hiten Samtani (15:36) Wu, at this point, he's being likened to Warren Buffett, the Chinese Warren Buffett, and he goes and speaks to a crop of Harvard students and he says, in my opinion, one of the greatest analogies ever made in modern business. You want to read it? Will Krasne (15:51) If you choose to stay in rural villages, you can only meet common village girls. Hiten Samtani (15:57) Yet if you come to Paris, you'll have the chance to lay your eyes on the Mona Lisa. Will Krasne (16:01) Just perfect. If that's not a limit up kamikaze ⁓ way to be, I don't know what is. Hiten Samtani (16:05) That's He's explaining his rationale to come into the US real estate market in such a big way and pay these kind of prices. We take a few shots at Blackstone here and there. One thing that Blackstone is supreme at is identifying the Patsy. $1.95 billion for the Waldorf Astoria. is $1.4 million to keep pre-rendered. Will Krasne (16:27) Unbelievable. Just a staggering price. Hiten Samtani (16:29) I love the way that this was framed at the time because I remember when this deal was happening, there was this patent of invincibility around the Chinese, like, hey, this is very different from the Japanese because they're not levering up, et cetera. The difference was they were levering up back home and then buying in cash. So was kind of hidden leverage in a way. And when this deal happened, I remember there was this whole thing about, it was a chairman to chairman transaction, as in John Gray and Schwarzman were basically quarterbacking it for Blackstone with Wu directly. Will Krasne (16:59) That almost makes it worse, right? If John Gray's trying to sell you something, do you really want to buy it? Hiten Samtani (17:04) And that wasn't all they did John Gray sold to them. Strategic that you mentioned up top was a Blackstone. Will Krasne (17:09) When you're on a heater, you know, got to press it. Respect the street. And that's exactly what they did. It's like, hey, you like this really overpriced full service money pit that we've got in New York. Would you like some overpriced full service money pits elsewhere? Hiten Samtani (17:22) It's like an eight billion dollar sell-off to one company by Black Will Krasne (17:26) That's a fond returner in and of itself. Hiten Samtani (17:28) All right, let's talk about a specific number here. Will Krasne (17:32) Big shit So when Charlie Kushner was for a half minute thinking about doing a full cap stack to redevelop 666 into $7 billion vertical mall. Hiten Samtani (17:50) Yeah, we should say at this time any numbers were being thrown out. This is a building that was purchased at 1.8 billion dollars, which was a record record record overpriced price at the time and suddenly in the middle of it being hella distressed, they're talking about a seven billion dollar Will Krasne (18:04) figure. And that's after they sold the retail, was the most valuable part of the building. Hiten Samtani (18:07) Exactly. You can only bring up such figures when there is foreign money floating in the air and the prospect of presidential power. Again, this is Trump won. These things were still scandalous back then, but this was front page headlines that the Kushners had met with Anbang and the Qataris to talk about investing in this tower. We did a whole episode on it. We'll put it in the show notes. Will Krasne (18:26) Right, and the Cutterys ended up doing it and Brookfield has now stabilized it. So they also made a run at a public company that they lost out on, which was Starwood Hotels. So it was a $14 billion transaction. Marriott ended up buying it and combining it, much to the chagrin of all the Starwood points holders. But the fact that they were making runs at companies this size was... staggering given how much they'd paid for these other assets. They were going to spend $22 billion on the US hotel industry. Hiten Samtani (18:58) It's astonishing. We didn't know enough about the origin of some of this money, right? Turns out that the Chinese government shared a similar concern. So in the late 2010s, they started issuing warnings about what are known as gray rhinos, which are big companies that grew incredibly quickly with a lot of leverage and a lot of murky financial structures. H &A was one of these companies. They formerly owned 245 Park Avenue, which S.L. Green took over in a magnificent deal for them. And Anbang was the other. big gray rhino Will Krasne (19:30) how you don't want to be the main character in the FT, you definitely don't want to be the main character for the Chinese government. Hiten Samtani (19:37) Yeah, and unfortunately for Wu, did not go so well. So he was accused by the government of embezzlement and fraud and all kinds of bad things. And in China, when you're in that situation, it's basically... Will Krasne (19:49) have to worry about Mr. Wu no more. ⁓ Hiten Samtani (19:51) You won't see him no more. thing we should say though about that is that Anbang sort of ceased to exist at some point. yeah. And all its properties, all its properties were packaged and handed off to a holding company that was regulated by the state government called Dajia. Will Krasne (20:07) The part of Dajia taking it over is that the WSJ article about this just says, Chinese reinsurance company. It's like, boy, if only you knew. Hiten Samtani (20:16) only you knew you're lucky you have to promote for that. Dajia had this tough task of renovating the Waldorf and figuring out how to deal with the rest of this portfolio. So it did the Waldorf. I want to give it maybe A in output, but D in process. Will Krasne (20:31) I mean F minus in process. They spent eight years in what four billion dollars renovating it Hiten Samtani (20:38) I gotta ask you though as a developer, how do you break down that cost? Do you say per key, per condo unit, per fucking square foot? Like, what do you do with a four billion dollar figure? How do you spend it? Will Krasne (20:50) I don't know if you've been in the Waldorf. You could lose a billion dollars and not notice. a little bit. So big and the rooms needed so much work. Anytime you get in the walls, you don't know what's going on with a building that old. And I'll tell you though, they did a phenomenal job with the public space, the bar and the lobby is beautiful. The rooms were always challenging. The condo conversions, hotel to condos are always tricky. The plaza, as much as we applaud Mickey Naftali for Hiten Samtani (20:56) The carpeting massive. Will Krasne (21:18) What he did there, there was a bunch of lawsuits about the product and I think these condos are not selling. Hiten Samtani (21:24) I told you about a guy that I know who bought a pad at the Waldorf and what his per foot price was. was cartoonishly low. Will Krasne (21:31) So they're in it for something like six billion and that's for the condos in the hotels. So not totally apples to apples, but they're asking about a billion. Hiten Samtani (21:38) Also shopping the strategic hotels and resorts. Now, we will mention this company in this portfolio of Prime Prime Assets. Hotel Del Coronado was taken out of this mix. We're still talking about 15. Will Krasne (21:48) just pulling up the list because it's some just phenomenal assets. Hiten Samtani (21:53) Super-swanky stuff, yeah. Will Krasne (21:55) the Four Seasons DC, the Intercontinental Mag Mile, the Intercontinental Miami, the JW Merritt Essex House, the Westin St. Francis, the Ritz-Carlton Half Moon Bay, which is... Yeah, the Ritz-Carlton Laguna Niguel, the Regent Santa Monica. So these are just prime, prime, prime hotel. Hiten Samtani (22:05) Awesome. that's got to be nice. They could host the IMN conference kind of hotels. Will Krasne (22:16) Yes, exactly. Hiten Samtani (22:17) The other thing is you can't run an asset like this bare bones, right? There's only a maximal way to run this thing, like a wall drawer or for anything else. Will Krasne (22:24) If you're charging these premium prices, have to provide a premium service. When stuff starts looking tired, like the guests will let you know. You read the great book about the plaza by Julius Hedef. Hiten Samtani (22:33) Shout out to Julie, she's my ex-boss's wife. Will Krasne (22:36) Like one person ever made money on the plaza. And it's really hard to make money on these unless you find the sucker. Hiten Samtani (22:42) This broader trend, there's a wave, as you mentioned, of high-end hotels hitting the market right now because there's quite a big gap between kind of the everything else and the tippy top luxury in the US hotel sector, which is doing astonishingly well. Will Krasne (22:54) Consumers have really been impacted by the economy, but the top is doing great. We've seen since COVID the experiential market has boomed and experiences, especially high end where people are price insensitive, has done well. But again, you have to staff it and you have to provide the product that is sufficient for these folks to show up. Hiten Samtani (23:13) Did you see that the Red Central Park went for $1.2 million a key? Gencom. What are they looking for here? They're looking for a billion dollars for what? $375 key. Will Krasne (23:21) Yeah, two and a half mil a key. Hotels have really seen a brain drain. It's something I think we've talked about a bit too, where hospitality was one of the acceptable institutional asset classes. And if you look at traditional hotel buyers, Starboard Capital Group, Blackstone, KSL, they've really shifted away from it. So who are the buyers, if not for companies like Anbang, H &A, who can write a billion dollar ticket and then probably have to spend, I don't know, half a billion more? to get this thing where it needs to be. So, it'll really interesting to see, because these are some of the most trophy assets, but oftentimes you've been off maybe owning some tertiary market self-storage. Hiten Samtani (24:10) Alright, I'm here with Aaron Krovitz from Bravo Capital. Aaron, let's get right to it. What's the story behind this mythical 100 % HUD approval record? Will Krasne (24:18) Pretty straightforward. We have an amazing team. We're pure play HUD. We're focused on bridge to HUD all day. We're both fully HUD licensed and we also offer a balance sheet bridge financing where we could finance deals over a hundred million dollars just like we did in Miami, Brooklyn and Jersey City. Hiten Samtani (24:34) And what's the secret sauce? How do you put it all together? Will Krasne (24:36) It's our underwriting. We don't rush deals to market and hope they stick. We know what HUD wants before we submit, so there are no surprises. And we have a real balance sheet. So when we go, we go. Hiten Samtani (24:46) You were telling me when we were chatting offline that you closed a HUD Express lane deal in four days? That's absurdly fast for HUD. Will Krasne (24:52) Hit 10, that's why we get up in the morning. At Bravo, we're here to break records, we're here to innovate, and when you have tight documentation, the right underwriting, that means approval. Hiten Samtani (25:02) And speed means the sponsor can close quick. Thanks Aaron, good to have you on. Will Krasne (25:05) Thanks again and you can find us at bravocapital.com. Alright, so the D.C. Attorney General filed a RICO case. Hiten Samtani (25:20) Is that normally for Sopranos, Mafioso kind of stuff? Will Krasne (25:23) Yeah, you'd think but no it's against ⁓ slumlord Sam resjulian. Yes Hiten Samtani (25:29) and his mother and his brother. This is notable because the DCAG said this is the first time that RICO statute has been used against a real estate owner. Will Krasne (25:38) It allows them to get, I think, more penalties for the same crime. Hiten Samtani (25:43) You get treble damages, but also importantly, you don't have to just go after one property, one LLC, et cetera. You can kind of go after the web or the Nexus, so to speak. Will Krasne (25:52) Yeah, absolutely. And so I guess according to the complaint, the Razjullian family, they've controlled more than 70 rent controlled buildings with over 600 units, primarily in wards seven and eight, are primarily black. They're rent controlled buildings for a reason. And the family who I love that the article in the DC city paper says, who own neighboring multimillion dollar townhouses in Potomac, which to be fair, a multimillion dollar townhouse in Potomac could be like 1300 square feet. They allegedly defrauded lenders in the city while subjecting low-income tenants to dangerous and deplorable housing conditions. Hiten Samtani (26:22) The kind of allegations we're hearing in this lawsuit about tenants specifically are unfortunately pretty run of the mill, Neglecting buildings to the point of dangerous conditions, lying about repairs, all that stuff. Though there are a couple of things you pointed out. Will Krasne (26:36) Again, like, their shades are gray here, and then there's clearly, like, awful, evil things. Like, they were doing a lot of the latter. Allegedly. They treated people horribly. And again, allegedly. And again, providing housing is a huge responsibility, and like, people need to take that seriously. These guys did not, allegedly. But some of this stuff is kind of funny. They would paint doors onto concrete walls. god. And put, like, number tags on them to make buildings look like they had more units. when they were doing lender inspections. So they added like 10 units to some property, were just like walls that didn't go anywhere. They would lever up to promise repairs and just pocket the money. Hiten Samtani (27:12) They would tell lenders that, we're going to rent exclusively to voucher tenants. I think you're exempt from rent control when you do that. And then this part, I think, was our mutual favorite, which was once the Razdryan name was tarnished, Salid, they found straw buyers to go buy these things and get the loans on their Will Krasne (27:30) have. The fact that they're going after using Rico to go after these guys because again, first time DC AG is doing that and the first time I've seen it. Hiten Samtani (27:37) how tenant-friendly is DC kind of in the broader spectrum. Will Krasne (27:40) very tenant friendly like there's Topa which is a tenant opportunity to purchase act Hiten Samtani (27:44) that's like the Copa thing that was just killed in New York? Same kind of thing? Yeah. Will Krasne (27:48) That's been a thing in DC where tenants can organize and purchase rental buildings. It doesn't often happen, but it's hugely costly to go through a purchase process. can take a year because the tenants basically have a right of first refusal to buy their buildings. Hiten Samtani (28:00) We're obviously making light of a couple things here, but as we've talked a lot about and regular listeners will know, when you're running an apartment building, you really have tenants' lives at stake. It really matters. We understand how hard it can be to be a landlord because forget about getting a horrible tenant out. It just doesn't happen. There are so many laws that are very much in favor of tenants, but the reason they fucking get there is because of scumbag situations like this. Will Krasne (28:25) 100 % as a landlord myself. We have to call out this behavior and make sure that this isn't accepted because it makes I Understand where people are coming from when if you're attending this building, I would be completely militarized against landlords Hiten Samtani (28:40) If landlords were to take just a few steps to call out extreme cases like this, my hunch is that the laws wouldn't be as skewed towards tenants as they are. You think of Harry Mackleod with the illegal midnight demolition in the 1980s. Rafi Toledano with the craziness happening in the East Village. Cases like that are the ones that kind of reach escape velocity, create that kind of media frenzy, which then puts political pressure on lawmakers, which then creates these laws, right? It's all a function of this kind of shit. Will Krasne (29:11) It absolutely is. If you're sitting here saying, rationally, like most landlords agree, yeah, sure. But like, doesn't matter. Like, you have to understand that the optics of dealing with people's homes and not providing safe places for them, that overrides everything else. Hiten Samtani (29:34) You know how brokerages have been talking of a big game and AI being a force multiplier and all Will Krasne (29:39) Yeah, actually, I'm using SirHantzSimple to record this podcast. kill all the brokerages. Done. End of segment. The big brokerages last week were down enormously. Bloodbath. Yeah. So CBRE, JLL, Cushman, they all got hit really hard as did the office REITs. I think people are saying that it was because of new anthropic products through Claude that got rolled out. And everyone just started to figure, oh, we're never going to need office workers ever again. And that's sort what got priced in. Hiten Samtani (30:10) The areas went down what, 20 % I think at some point. And this is rough because Bobsleigh had a lot of things to be quite proud about on this earnings call. I think they had record revenues, a bunch of things were happening. Will Krasne (30:12) 20 % in two days. It was an earnings blowout. I think the big takeaway, though, is how skewed in all of our imaginations the importance of brokerages, sales, leasing, that's sexy stuff. Hiten Samtani (30:31) We've talked a lot about that hierarchy, And it's investment sales, then office leasing. That's in our minds, that's what drives this business, but it's absolutely not that. Will Krasne (30:40) Yeah, what drives it? Like for CBRE, the engine of their revenue is... Hiten Samtani (30:44) Facilities management. 70 % of the business is facilities management. The really boring unglam stuff. I have this anecdote, I forget who told me, but someone who's well connected. They're at the CBRE conference and Bob Solentik was there like, Bob, are you gonna go? He's like, nah, I don't even care about these guys referring to me. I salespeople. Such a staggering driver of the business is just the boring blocking and tackling of keeping a property in shape. Will Krasne (31:10) look at Collier's, De Hennick, and First Services, that's what he built, like the juggernaut that he built. That's exactly what this company does. And the advisory services are sexy. They're almost like a loss leader in a lot of cases. ⁓ Hiten Samtani (31:21) Now I think about them too. feel like brokers make really good money. Brokerages in that sense are not as great a business as you would think. Will Krasne (31:28) The human capital can walk out the door. And you've seen what Walker and Dunlop has done. If you can pay these guys, you can go get them. There's not really a lot of switching cost for these folks. And so what they're saying is that, why do you need a broker if Claude can put together the OM for you? They can put together the email list for you. They can put together all of the follow-ups for you. But again, that doesn't really drive a lot of these businesses. It's really about the emotions. And it's a relationship. It's a carousel. It's a carousel. It's a place we ache to go again. And I'm not sitting here and saying that the brokerage business is completely indefensible from AI or immune to AI. It's not. A lot of these workflows, a lot of people can get replaced. But at the end of the day, real estate alpha, the asset cost by itself, you can't press a button. have to be. But you can create a feeding frenzy for certain assets. We're subject to the vicissitudes of the market because we're human beings. I think it is somewhat overstated. I think there is bloat. I think these things can be run more efficiently. You don't need 14 people on an email chain to do tours. But it seems like a little bit of an overreaction, particularly because, as you said, lot of these businesses, property management is not going anywhere. Hiten Samtani (32:40) It's a sentiment emotion thing as opposed to anything logical. The same time SF's office market is having a rip roaring time right now. Anthropic that we just talked about just signed up for that 300 Howard. Exactly, Difco West. Those AI companies have been such a big driver of SF's office resurgence. In New York, the financial sector is buying up or leasing up everything they can. Look at JB Morgan with 270 Park and the return to office. Will Krasne (32:51) Divco and Blackstone. Divco West, yes. Hiten Samtani (33:07) Mania in big finance is huge, so I don't quite get this one. Will Krasne (33:12) me either. But again, that's why I'm not smart enough to do public market investing. I'm sure the pod gods, Ballyasny and Millennium can set us straight on why this is actually correct. Hiten Samtani (33:21) What you think about this, like the argument which is, like real estate because it's tangible, it's something I can touch. It's falling hard here on that. Will Krasne (33:29) devastating for every entry level real estate job interview when they ask why real estate. It'd be one thing if the broker's business was a melting ice cube like cable or one of these other industries where there's a real question about the terminal value but they're all doing really well. They're all cranky. They're profitable and revenue is up. Hiten Samtani (33:44) They're making money, most of them are profitable. I was looking at the Green Street rankings just before this. Every metric is up. Deal volume is up 30%, 40%, 50 % in some cases. Will Krasne (33:56) Imagine how much the stocks would have been down if they weren't crushing it. Hiten Samtani (34:00) Sadly, I don't think it would have mattered at all. So that's it for the Promote Podcast this week. A man wanted to chase the Mona Lisa and ended up doing the scream. AI has gone from a brokerage talking point to an existential threat, as to the stock at least, and a landlord is getting the full mob boss treatment in our nation's capital. We'll be back next week with more CRE insider goodness. Will Krasne (34:30) Thanks again to our sponsors, Lone Boss and Bravo Capital. Hiten Samtani (34:33) You can find them at LoanBoss.com and BravoCapital.com. The world's moving so fast, Will Krasne (34:39) Who knows what could happen in the world of real estate? Perhaps Claude will infiltrate and record this podcast for us. Hiten Samtani (34:44) We can only hope. Alright dude, thank you so much. I'll see you next week. Ciao. Will Krasne (34:48) Thank you.