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Men of Destiny: The Reichmanns, Pt. I · The Promote Podcast

• Hiten Samtani (00:07) There are very few families that become synonymous with an entire approach to an industry, a playbook combining canny assemblage and skyscraper building mastery with the arcana of extreme financialization and a riverboat gambler's instinct to put it all on the line again and again and again. Will Krasne (00:23) There are very few families whose histories start in the shadow of the Holocaust, expand to the anything goes free zone of Tangier, before rising to the top of the apex proving grounds of Manhattan and London, and who do so while maintaining their faith with such rigor and giving at such scale that they become symbols of it. Hiten Samtani (00:42) Those are two short lists. Will Krasne (00:45) Only one name appears on both. Hiten Samtani (01:00) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani. Will Krasne (01:05) And I'm Will Krasne Hiten Samtani (01:08) Shout out to our sponsors helping bring this very special episode to life, Loan Boss, the best in class CRE debt management software. Will Krasne (01:15) Real property captive, the first group captive insurance for mid market owners who the Reichmanns were not. Hiten Samtani (01:20) They certainly were not. And Bravo Capital, a leading HUD in Bridge Lender. Check out their handy HUD Express Lane assessment. I'll drop it in the show notes. It's episode 70. As promised, every 10th episode, we're gonna break programming and give you something special. It's time to dive into the improbable on so many levels. Tale of the Reichmann family. There has never been a story like this. Will Krasne (01:42) And there probably never will be again. Hiten Samtani (01:44) We should maybe start with a little lesson for my co-host here. So since we're gonna say this name a hundred times in this episode, Reichmann. Will Krasne (01:53) And I had my tonsils and adenoids out when I was very young, so like the it's really difficult. Hiten Samtani (02:04) It just hits on all our stuff. Will Krasne (02:06) Before even just talking specifics, let's just talk about scale. We did this with our previous special episode with JMB, talking about how big they were compared to Blackstone today, before accounting for inflation. These guys were about order of magnitude as wealthy as Donald Brennan in 1986. The richest guy in US real estate today. They were as wealthy as years ago. Hiten Samtani (02:30) Back then forty years. Will Krasne (02:31) So think about that. Hiten Samtani (02:33) With JMB Realty, it's your standard real estate mega corporation with a bunch of different LPs. This is wholly owned by the Reichmans. No outside partners, no equity for anyone else. It's just the guys. Will Krasne (02:45) Exactly. There's no other equity, there's a lot of debt. Hiten Samtani (02:49) Ha ha ha. people talk about we want to be conservative like the grand old families you always scoff because these are the complete opposite Will Krasne (02:58) The single most aggressive commercial real estate borrower, maybe in the history of real estate, was a grand old family from Toronto. You don't compound your wealth at the rates that these guys do without one being in the right market and having the underlying value of the land compound and two, levering to the hilt. Hiten Samtani (03:18) Not only levering to the absolute hilt of what was available at the time, but in fact creating new structures to then lever up some more. Will Krasne (03:25) Skill is hitting the target. Genius is hitting the target that no one can see. And that's what these guys did. They not only borrowed as much as humanly possible under the existing loan structures available, they created new ones. As we watch the financialization of asset back loans in the data center space, or Hiten Samtani (03:48) Life co insurance pipeline. Will Krasne (03:50) what Apollo's doing now, this is what these guys were doing 40 years ago. That's one of the reasons that we were attracted to this. It's very akin to the reckoning that's happening in the syndicator space over the past few years, just at a much grander scale and unraveling the impact of the global financial markets. And I think the biggest one is that some of the biggest players today, in fact, one of the two or three biggest is a Phoenix rising from the ashes of their former portfolio, which is Brookfield. You also wanted to talk about their philanthropic. Hiten Samtani (04:19) I generally take a pretty dim view of philanthropy. I see it as a reputation burnishing slash tax shield exercise for the most part. These guys, though, it seems hardwired into their DNA. Unlike a lot of other super wealthy people who give, these guys have been giving from the very beginning through some unimaginable adversity. And their giving often outweighed what they had. So they were giving at a scale that was bigger than their pockets at a certain time. Eventually those pockets caught up. And the other thing is. The sheer concentration of their giving really makes them stand out. So your typical billionaires will do a lot of spray and pray, art, education, the mat, etc. These guys gave almost exclusively to ultra-orthodox Haredi Judai causes. And so their legacies in those worlds are magnified. A lot of the source material for this episode is this extraordinary book called The Reichmans, and we'll surely put it in the show notes. Tony Bianco, props to you, man. A great family story, a great CRE story. A great sociological tale. Well done. Will Krasne (05:21) It's a fantastic book. The title really says everything because it's not just the Reichmanns there's subheading, which is Family, Faith, Fortune, and the Empire of Olympia in New York. You can't really untangle the whole Reichmann mystique without looking at how the family, the faith, the business, and the fortune are all intertwined. Hiten Samtani (05:43) There's a sense that I got from the book that the Reichman saw themselves as men of destiny. So it's not enough to just be very successful at business. You have to parlay that into something that can shape the fortunes of your people. That is a through line from their pretty tough moments around the world war all the way to their incredible ascent to the top of the real estate pyramid. Will Krasne (06:07) Totally, to whom much is given, much is expected. With great power comes great responsibility. Yeah. These guys were as talented and smart and driven as anyone who's ever laced up a spreadsheet in real estate. If you go through the family history, they ha faced horrible, unimaginable tragedies, lost several fortunes through no fault of their own, but always made it back. There's a study that shows that in folks with inherited wealth are the cheapest. Because if you don't make the money, you don't have any confidence that you can make it back. These guys, it was about creating a legacy beyond just First Canada Place or World Financial Center. And they certainly did that. Enough teasing. Let's get into it. Hiten Samtani (06:53) When we come back we start our journey at a bar mitzvah in Beled, Hungary. Will Krasne (07:01) Mm-hmm. Hiten Samtani (07:04) So, Will, you violate any debt covenants recently? Will Krasne (07:08) 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 a loan. It's because that's when I started using loan boss. Hiten Samtani (07:20) I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that. Ugh. Will Krasne (07:26) Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible, instant cash flow 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 (07:49) They just got it sorted here for Will Krasne (07:51) Much better. So thank you, Loan Boss. Hiten Samtani (07:54) Listeners, check them out at loanboss.com, that's loanboss.com, and tell them the promote sent you. If you know me well, you know that I really like my eggs, and if I were back in Hungary back in the day, I'd be buying my eggs from Samuel Reichmann for sure. Will Krasne (08:25) Absolutely. When I think of Bled Hungary and Eggs, there's really only there's two names, but Sam Reichman is is definitely the one that comes up first. Hiten Samtani (08:34) Samuel Rechman, like so many people from this community, he was a merchant. He bought, he sold very smartly, and he parlayed that into a very prosperous life for him and his large family. This life was often centered around faith. There's so much history that we're probably not going to be able to get into, but let's just start at the bar mitzvah of his eldest son, Edward. Will Krasne (08:55) There's numerous near misses like this. His son Edward had been scheduled to have his bar mitzvah in Vienna. Hiten Samtani (09:02) Grand synagogue and everything, right? Full pomp and circumstance. Samuel's father was not in great shape, so they moved the whole ceremony to Bellette. Will Krasne (09:13) And that was the day that Vienna and Austria were annexed into Nazi Germany. Hiten Samtani (09:26) The history of Ciari has so many of these incredible near misses. I remember reading Sam Zell's book. It starts with something similar where his parents take the last train out of Poland. Yes. Right before the invasion. And he changed that plan and we would have never maybe heard of Sam Zell. Will Krasne (09:41) Frankly, like I think this is part of why they viewed themselves as men of destiny because they were. Yeah. They really were. If they had been in Vienna on that day in March in nineteen thirty eight, they're not getting out. Their faith saved them in a way. You really can see that through line throughout. Hiten Samtani (09:56) We've been saying men of destiny, but I think that the matriarch here is such an extraordinary character that Renee Reichmann, Samuel's wife, is one of those colossuses of history. And she was a woman in an ultra orthodox family. So decidedly life in the backseat. If she had been a man, I think we wouldn't be talking about Paul Reichmann or any of the others. It would be all Renee. Just an amazing force of nature. Will Krasne (10:22) Be Alfred Vanderbilt versus Cornelius or something like that. Force of nature is right. If you read between the lines and how her children thought about her, saying that they were in awe of her is sort of shortchanging it. She was the emotional bedrock. Sam very successful, but behind every great man, there's a great woman. I'm sure she had a big impact on him and his ability to make money. And she inculcated this same instinct in her five kids. Hiten Samtani (10:48) Right. And during this whole thing, World War Two is taking place, some unspeakable horrors are happening all throughout Europe. She sees herself as someone who needs to do things for her community. Will Krasne (10:58) First Hungary, they just never went back and ended up going London to Paris and then ended up settling in Tangier when France fell in nineteen forty. Hiten Samtani (11:08) They're thrust into a whole new world. They have to figure everything out from scratch. And they do this multiple times. So the kids are growing up through this. We've got to figure it out each time. Nothing's promised to us. We've just got to get better and do bigger things as the world changes so rapidly around us. Will Krasne (11:25) Absolutely. The through line is then incredible mom. Let's get into some of the things that she did during the war. Some of these are just astounding. So she pressured Franco's officials into issuing visas. Hiten Samtani (11:35) This is generally small fragment. Will Krasne (11:39) for Jews in Nazi controlled Budapest and organized food parcels through the Spanish Red Cross. A very famous US diplomat, Jay Reeves Childs, was her channel and he apparently carried a letter from Renee in his pocket for years and credited her, not himself, for getting all of this done. Hiten Samtani (11:57) There's this extraordinary sentence in the book that I want to read for the tape. At a time when much of Spain itself was desperately hungry, Rene and Eva Reichmann employed an artful mix of indomitability, feminine charm, homespun diplomacy, and bribery to maneuver the fascist government of Francisco Franco into sponsoring the shipment of tens of thousands of food parcels to inmates of Nazi concentration camps. Will Krasne (12:20) I mean I don't really know what to say. Hiten Samtani (12:22) There's one from later on that I think we should also have for the tape. This is Canary Wharf, which we'll jump into later, but at one point Prince Charles himself visits Canary Wharf and he's chatting with Paul Reichmann. Samuel, by this time, has passed, and Renee is the chairman of the company. Old Prince Charles says to Paul, I understand that your mother is the chairman of the company. How does that work for you? And Paul replies, You could say that we both have the same problem. Just amazing. So let's get into the sons. So kind Will Krasne (12:51) There's five of them. Hiten Samtani (12:52) of middle of the pack for for that time in this kind of family. Will Krasne (12:55) So Edward, Lewis, Ralph, Albert and Paul. And so these kids they've settled in Tangier. Hiten Samtani (13:02) You wish you'd have done it a couple years in Tangier and I was saying this to myself all afternoon when I was preparing the docket. But Tangier is a city, but it's not quite a city at this time. What is Tangier? It explains so much of the entrepreneurial ambition and DNA of these guys in the next generation. Will Krasne (13:21) It's like the Moss Isley Cantina. Samuel became a major currency trader and made the real first family fortune. He was well off in Hungary, but this was really a different level. And the sons, of course, you know, what is it? We study war, so our sons may study business, so that our grandchildren may study art. Yeah. And they wanted Paul to become a rabbi. Hiten Samtani (13:46) He shows an affinity for the Torah study. Will Krasne (13:48) He did indeed. Hiten Samtani (13:48) In this community, the study of the Torah is considered the highest calling as opposed to success in business. And Paul brings this up later. I don't know if he does it because he has to, but he almost downplays his business success and says, I should have gone and done this. Will Krasne (14:03) Everyone thought that he was going to basically do this for his entire life because he clearly had a gift. Obviously, Fate had other plans. But just down the line, he became so famous and the Reichmans were so successful that they had New York real estate families and other like finance professionals who were trying to read the Talmud and be like, How how did this guy do this? We gotta figure this out. It was such a part of their whole mystique. We keep harping on this because that's really what allowed them to borrow. We have this phrase in the podcast that we use: men with deep pockets. These are the guys like that. Right. And every lender just assumes they have unlimited money. Every counterparty knows that they're smarter, have more borrowing capacity, have a bigger balance sheet, but no one knows what's there. They Hiten Samtani (14:46) Played that very well. Will Krasne (14:47) Yeah. And everything is just off the reputation, off a handshake. They were so pious, so smart, so humble, especially relative to their success. Paul lived in a modest house in Toronto, despite being one of the ten wealthiest people in the world. Hiten Samtani (15:02) His only billionaire extravagance was collecting rare Talmud manuscript. Will Krasne (15:06) I think we'll let him slide on that. That's fine. Hiten Samtani (15:13) One line about Tangier. So this was an international free zone that was set up by the colonial powers. And the idea was that anything goes, you can find a million different ways to make money. And there's not too many laws around. There's traders from all over the world who really pitted against the very best with very light regulation, to put it mildly. And this is the environment in which Samuel Reichmann thrived. He figured out a way to make gobs of money and set the family up for its eventual path to North America. Will Krasne (15:43) So the fortune that built what is now Brookfield Place, Canary Wharf, first Canadian place, started as a wartime FX arbitrage in a lawless port city. That's not a normal CRE origin story. Hiten Samtani (16:00) So when you take family that's shown that it can thrive amid lawlessness and in the absence of the institutional capital markets, and you let them loose on more genteel terrain, what happens? We'll find out right after this. Okay, I'm here with Aaron Crowitz from Bravo Capital. What are the elements you look for in a great originator, a great lender? We Will Krasne (16:25) Talk a lot about urgency, quality, and enthusiasm. My language is a language of urgency. Of course, we have a high standard for quality and we want that person to be someone you could work with late at night who has enthusiasm and a good personality. We've taken a really contrarian approach towards talent acquisition. Some Bridge Lender peers have kind of laughed at us saying, Why do you have such a big summer program? Why don't you just hire laterals? And having come from Skadden and Gibson, that feels to me the best way to build a firm. You are able to ingrain your culture in your new hires from an early time point. You're able to get the best people and it's worth it. It's worth training somebody for two years or so until maybe they make a big impact. Hiten Samtani (17:16) Thank you Aaron and where can people find you? Will Krasne (17:18) People could find us at Bravo Capital dot com Hiten Samtani (17:29) We leave Tangier and we go to Canada, which becomes really the root of the Reichmann business model, the development game plan, the capital markets expertise. It all starts in two cities in Canada, Toronto and Montreal. Will Krasne (17:45) With a wife from Ottawa. There's a lot of Montreal. It's like, the separatists. My father in law. Hiten Samtani (17:51) Which plays a role here, by the way. Will Krasne (17:53) For sure. So Edward immigrates first to Montreal and then Lewis founds Olympia Floring and Tile, which is a tile importer of all things. Hiten Samtani (18:03) It continues that DNA of buying and selling, which was the core DNA of the family at this point. Will Krasne (18:08) Great investors, great traders. They're gonna be good at basically any asset class. They're trading. And it's the same thing here. So Lewis founds the tile company, and then Albert founds York Factory development. Hiten Samtani (18:19) Which is their construction business. Did you see how the the name Olympia in York came about? It's pretty good. Yes. Will Krasne (18:25) Eliminated. Hiten Samtani (18:26) Edward is on the phone with his lawyers trying to come up with a name for the company. All his pics are are taken. He's in a hotel, I believe. He looks at a couple pairs of socks he has lying there. One has the name Panther. I'm grateful he didn't choose that. And the other one says Olympia. He says to his lawyer, is Olympia available? He says, Yeah, that's how you get Olympia in York. Will Krasne (18:47) Frankly, the and makes it so classy. Hiten Samtani (18:51) That adds the gravitas that you need. Will Krasne (18:53) Imagine if it was black and stone or star and wood. It's just better, no? I agree with you. So you've got the operating brothers, right? Albert, Paul, and then Ralph is still alive. But Paul was among the youngest and was this Wunderkind in the Talmud. Albert was seen as the administrator, builder, but eventually Paul sort of became the John Lennon. Hiten Samtani (19:14) Mastermind, the driver. Something we should say about Paul, he's almost holding back at this point, especially in orthodox circles. It's like he's masking his brilliance, staying a little bit low profile. But as his career goes on, he just expresses himself more and more in his work. It's this combination of intensity, energy, ambition, and financial understanding at a very, very high level that just makes him the absolute g at what he does. Will Krasne (19:41) You think about Pat Riley, I think keep the main thing the main thing. And when you're a titan of industry like this, it becomes really easy to get distracted. The returns go away. You've got the boat, the plant, whatever. And Paul was just sitting there crushing cigarettes. Hiten Samtani (19:57) Yeah. Will Krasne (19:59) Yeah, and just dreaming up financial schemes to build the next massive campus. Hiten Samtani (20:04) Imagine getting this endorsement from Lou Frickin' Renieri, the founder of Mortgage Back Securities of All People. He said, Paul Reichmann plays the game in three dimensions while everyone else plays it in one. Will Krasne (20:16) Pretty good endorsement there. Hiten Samtani (20:17) And let's start with the the smaller deals that really created this model for the Will Krasne (20:21) It's really funny. If you read the book about Tramil Crowe, the origin story of the great real estate empire is almost exactly the same. Which Hiten Samtani (20:27) Everyone's been pushing us to do, but this one's way more interesting to us. Will Krasne (20:31) We'll do it at some point. But Paul falls into real estate because they needed a warehouse. I think the cost someone else quoted him was what he's like, That's that's crazy. I'll do it myself. And spent seventy thousand bucks building it and made a thirty five thousand dollar profit in a year. One point five X in a year. That IRR is pretty good. He does it once, gets a taste for it, and starts doing it for third parties. Very similar to Channel Corot, building these very simple warehouses throughout Toronto and Montreal. There's a million of these guys in Every major city in North America who've stuck up some industrial parks and made some money. Hiten Samtani (21:05) And you'll never hear of them, they've done well, you'll never hear of them. Will Krasne (21:07) So fascinating to me too is that in all of these stories about whether it's Blackstone sorry, anyone, they're the inflection points and you go vertical in a way. The ones who end up being the absolute top, it's like you flop a nut straight four times in a row. Yeah. Hiten Samtani (21:24) Yeah. Will Krasne (21:24) You're right, Teddy, the ace didn't know me. I flopped the nut straight. That's really what happened here. And so the first one it's called Flemington Park. I love Hiten Samtani (21:32) Backstory of this project, mostly because it has my main guy, the mascot of the promote, Big Bill Zeckendorf shows Will Krasne (21:39) Another one where the and makes it so much better, web and now. Hiten Samtani (21:43) Yeah, web map sounds like a wet diaper. Will Krasne (21:46) One of the most legendary developers that say eyes are too big for your stomach. His eyes were too big for an entire city's stomach, but built some of the most iconic projects in New York, North America. Hiten Samtani (21:57) This is the guy who had the immortal quote, I'd rather be alive at 18% than dead at the prime rate. Big Bill Zeckendorf at this point, his empire is starting to cave in a little bit. And he has this big assemblage that he's put together in not quite Toronto. That's the important part here. It's just kind of in the suburbs of what is now known as North York. But back then it was basically the boonies. Will Krasne (22:21) Bill's Empire was built with on extreme leverage, creative financing, really very similar things that the Reichmans would exhibit. So it's really a passing of the baton in a way that they take over this project, which you know had issues. Hiten Samtani (22:37) One of the things that a developer needs to be able to do at any level, but definitely at the highest level, is reach consensus with the politicians. You cannot do anything big in development unless you really have a sense of how the political power structures work in a given city that you're operating in. In this one, there was a squabble between the province of Ontario, the city of Toronto, and the city of North York over this $300,000 underpass. No one wanted to pay for it. If this did not get made, it would be a huge blow to the value of this project. So the Rahman's go in and say, look, we will cover 75,000 of this. That's on us. We'll take that hit. Can you guys split the rest? They agree. They create an underpass and this unlocks millions of dollars in value for this project. Will Krasne (23:22) There's this line in the Bianco book. It's essentially Paul Reichman trying to convince his family to do the deal said, There's money on the ground over there. We need to go over and pick it up. Hiten Samtani (23:32) Drink your Will Krasne (23:34) Milk say Hiten Samtani (23:35) There's no bad deals, there's just bad capital stacks. And that's how Zek found himself. And these guys came in, took it over, and once it was completed, what it was the most populated census tract in Canada at some point? Will Krasne (23:46) Yeah, it had housing for over twenty thousand people, knocked it absolutely out of the park Hiten Samtani (23:50) And this line really hit for me. I really felt it in my bones. It was typical of Paul Reichmann that he would lose interest in Flemingdon Park once its success was assured. I really felt that one, I'm no Paul Reichmann, but the romance is in the challenge, and then once you know you've made it, the sparkle goes away. don't you want to fuck everyone when you see just the other thing that I think makes them quite remarkable is the lack of sentimentality to their company, their employees, the way they did the business. They were always iterating. They were always looking to level up their talent. Because they go from building pretty simple warehouses to more complicated structures to eventually they become the preeminent skyscraper developers in Toronto. To do that, they've got to Basically, create a new company every four or five years, completely different level of engineering talent you need, financing talent you need. And then they did this. Will Krasne (24:43) They did indeed. It speaks to their grand designs. I think Paul at the beginning knew where this was going. Didn't Hiten Samtani (24:49) A man of destiny. Will Krasne (24:50) shortrun any steps. They did the simple developments, they did a more complicated master plan and just sort of moved on from there. This quote really I think exemplifies the feeling around them. The Reichman boys never had that feeling inside, that inner fear holding them back, says an Auschwitz survivor who achieved more modest, if more enduring, success in Toronto real estate. I kept telling them to slow down. Take their time, but their outlook was different. They see only opportunity. Hiten Samtani (25:18) I absolutely love that. And it reminds me of another Esther Perell thing that I heard recently, which has been on my mind ever since. She talks about growing up in a Belgian family of Holocaust survivors. And she says that in our community, there were two types. There were people who did not die, and there were people who came back to life. And the second group just saw life as something to be had and enjoyed, and were able to tackle things like that. For the boys here, because they were not quote. Holocaust survivors. It was part of the big family history, but they did not go through that. Life for them was all upside. And we'll talk about that in just a second, right after this. Well what if I told you insurance could become an asset instead of just an expense? Will Krasne (26:06) I'd say you're trying to sell me something, but also I'm interested. Hiten Samtani (26:10) Fair. Here's the math. You spend two million on insurance annually, loss ratio is well under 30%. Over five years, that's about ten million out the door, zero return. Will Krasne (26:19) Painful, but accurate. Hiten Samtani (26:21) What if 7 million of that built up in reserves that you actually own? Will Krasne (26:25) Pretty interesting. Tell me more. Hiten Samtani (26:26) Real property captive built specifically for scattered site GPs. Top carriers issue policies for lender compliance, reserves stay in your account, and after a few clean years, you're converting spend into equity. Will Krasne (26:37) I like this because that's what the big boys do. Hiten Samtani (26:40) Exactly, and now it's accessible for mid-market drivers like yourselves too. Check out the platform at rpcaptive.com. That's rpcaptive.com. And tell them the promote sent you. Love this one. It's the original data center deal. This is so good. Let's talk shell. Will Krasne (27:07) I can't believe it's still around. So they want to build their own data center. And I'm trying to imagine what this looks like in the late 60s, early 70s. There's like a phone line coming in and it's one guy sort of writing everything down, but he's in a center, so it's data center. Hiten Samtani (27:22) Rothman's the the cigarette company. I don't know if you guys remember those great ads that they used to have. planning to build over here. But at this time the cigarettes cause cancer revelations were coming out. So they backed out, leaving the Reichmanns with this big assemblage. That's the property that Paul Reichmann then pitched to shell. They're looking to purchase the site. They're not looking for a developer partner. They want to go and build this. Paul Reichman very candidly says, I will give you an option to buy this, but in exchange you have to at least hear out my proposal. The way that they impressed Shell was just giving them an incredibly detailed persuasive project plan. This is exactly how we're gonna build this, and this is exactly what it's gonna look like. And I'm gonna take you from A to B. The Virtue of the Plan sold the thing, and having Shell on board was incredible for two reasons. One, from a reputation standpoint, that's big. And two, it unlocks an extraordinary new financing mechanism for them. Yeah. Will Krasne (28:23) This is almost like a CTL is today, which a credit tenant lease where you can get financing for zero cash flow if you have a long enough lease with a credit tenant and it's really a tax arbitrage. Generally construction loan for something like this, you know, 60, 70% LTV, spread plus two, something like that. And these guys got a hundred percent LTV, or perhaps a little bit more, the corporate borrowing rate. And their argument was that a net net lease with a top tier credit tenant was akin to the tenant borrowing. They basically invented CTLs. I mean, not really. This has happened before, but like this was very, very sophisticated for someone who's doing their second big project. Hiten Samtani (29:00) What's good for General Motors is good for the Reichmanns in a sense. That complex became the locations for Shell and Texaco and Bell Canada. And instead of being able to raise eight million dollars in financing, they were able to raise twenty-two million dollars using this mechanism at cheaper rates as well. Will Krasne (29:18) And that lets you keep all the equity. The value creation just accrues a hundred percent to them. There's no slippage. And so that is what allows you to really compound your net worth at staggering rates, which is what these guys were doing. Hiten Samtani (29:31) It's quite mimetic, right? If Bell sees that Shell's done it, they're on board. Totally. Texaco's on board because Bell did it. They did a big project for Toronto Star and one of the largest and oldest newspapers there. The publisher of the Star was so impressed he gave Paul Reichmann extraordinarily generous payment terms. To your point about like no one knew what was under the hood. He said, One thing I always had to smile at was their free cash flow at this time was only something like fifty thousand dollars. But the banks thought highly of them, and so did Bell Canada, and that's why he did it. Will Krasne (30:04) Can always depend on the kindness of strangers. Hiten Samtani (30:07) It's just amazing. And just like our boy Gary Barnett later on, what they started with, whatever site they had, was not what they ended up building. They were consistently looking to add to the assemblages that they had. So if they had X, by the time they broke ground, they had 1.3 X. Will Krasne (30:22) And they did it in ways where it was just really accretive. It wasn't just more for the sake of more. It was figuring out how to unlock this hidden value. There's also this sort of thought in real estate that you have to steal a property. If there's a marketed property, it's no good. It's gotta be off market. Widows and orphans have to own it for 75 years and never raise the rents. And that's not true. Good stuff is expensive and it's always gonna look expensive. And I think they recognize that. Hiten Samtani (30:46) They didn't haggle very much at all. In fact, they were one of the few big players out there who would often just be price takers. They would say, All right, we'll do it. Will Krasne (30:54) But they do it in ways where they knew they could add additional value above and beyond what they were paying. They weren't just buying beta. I love this story too about the Toronto star site. There's this one additional parcel which was very accruative. And all the bidders did the same math really. They took an acceptable price per square foot for the Proforma, multiplied it by the buildable square footage, and then rounded down to the nearest hundred K. Reichmanns did the same, but didn't round down. Yeah. And Paul thought it'd be good to add on the extra, I think it was thirty seven thousand dollars and that's how they won the site. Hiten Samtani (31:28) It's inches as y as your boy says in any given Sunday. The inches Will Krasne (31:31) we need are everywhere around us. Hiten Samtani (31:34) Okay. The next one is the big boy. This is the one that elevates them from being scrappy, successful developers to top tier guys. Yeah. Will Krasne (31:44) And it's first Canadian place and it's built for Hiten Samtani (31:48) Bank of Montreal. It's important here to take a step back and talk about the dick measuring that happened amongst the banks, because that is really what created this project and what anointed the Reichmann. So all these banks, CIBC, Toronto Dominion, Bank of Montreal, and what's the fucking Scotia Bank? I think is the last one. I used to live in Toronto, it's been a while. But BMO always considered themselves the whitest of white shoe banks. That's been around the longest. It's done some of the most significant transactions in Canadian financial history. And they had this old site in downtown Toronto that they needed to vivify. Will Krasne (32:23) Great word. Thank you. Yeah. This was one of the only, I think it was the last undeveloped corner King and Bay. I've been to Toronto twice, so I don't really know, but this is Hiten Samtani (32:32) 'Cause you King and Bay, it's bay and king. Will Krasne (32:35) Bang King, sorry. Yeah. It's very super prime. This site had been, you know, looked at forever, nearly died. There was a mayor who was very anti-development, David Crombie. These are all Canadian historical figures that I've never heard of. Development was basically halted for three years. Hiten Samtani (32:50) Luckily, they had the approval for the first phase, which was with BMO. That was the important thing here. They survived that. They just sat through it. Will Krasne (32:57) Yeah, and so they finally got it built in nineteen seventy six. It was the tallest office building in Canada and they crushed it. They beat budget, they beat the timeline, and there's some really interesting nuggets on how they did that. Hiten Samtani (33:11) This site we first see the spirit that then comes out to disastrous effect a couple decades later, where they have to get financing to get this thing together. They get a consortium of banks. BMO, which is their partner on this project and the anchor tenant, is not going to be part of the lending syndicate here. However, BMO offers to guarantee their payments on it. In exchange, they have to put up for collateral everything that they own. And they do it. Will Krasne (33:42) Damn right they do it. Hiten Samtani (33:43) It's all their holdings. This is the pattern that repeats throughout history. There's a saying, right? Never go full Reichmann. Will Krasne (33:49) Never go full Reichman, yeah. At this time, they're rich. Yeah. They're successful. This is not, you know, betting everything 'cause you got nothing to lose. They're very, very successful and are on a path to be even more so. So they don't do this project. It's not the end of the world. But if you do it right, you just need one. Yeah. And this was the one. Hiten Samtani (34:08) You're a successful developer, you know what you're doing, you deliver on time, deliver on budget, you've built a reputation. But now you're trying to build a freaking skyscraper. Completely different game. Will Krasne (34:19) Honestly, it's sort of like how Elon Musk works, where they do it from first principles and they go back and restructure how even just like the site is laid out with all of their workers to do it more efficiently. Hiten Samtani (34:30) They design a new high speed system for transporting concrete, this giant I guess like a dock structure that they use to move things up and down and move workers up and down. So even though they're off on Shabbat, remember, they estimate that they saved one point three million man hours on this project, which equates to about twenty six million dollars in savings, which is huge, ten percent more. Will Krasne (34:51) something I think about a lot, which is that we haven't really iterated on construction. Part of it is we have much more regulation, but these guys, they iterated on how to build a skyscraper. And you talked about how they had to shed their skin every four or five years as they grew the company. And this is really the next phase of that. Hiten Samtani (35:08) There are moments of humanity in this giant construction job. Did you catch the anecdote about Michelangelo? Will Krasne (35:14) Go for it. Hiten Samtani (35:17) They're halfway through construction and they realize that their marble that which is arriving from Quebec is beginning to get a lot lighter. The skyscraper's gonna be a two-tone skyscraper, which is a no-no. So they dispatch one of their guys, Otto Blau, he sent to Italy to go figure this out. And he goes and buys a piece of the frickin' mountain that supplied the stone for Michelangelo's Pieta. He saves the day, the cladding comes in just a month behind schedule, even though they've completely changed their supply chain here. And the Reichmanns put a plaque up to commemorate this event, and it says the following These stones were brought over by Otto, Patricia's father, with sweat and tears. Anno nineteen seventy five. Will Krasne (35:59) Unbelievable. Hiten Samtani (36:00) Love that. Will Krasne (36:02) So you've got a brand new tower, you are feeling it, and most importantly, you've unlocked a ton of equity in something. Yeah. So what do you do next? Look. Hiten Samtani (36:15) I I lived in Toronto. It's Canada. There's an end line there. If you really want to go big, you gotta go to Manhattan. Will Krasne (36:23) All you need is as as Shelley Levine would call it. Hiten Samtani (36:36) So we'll just leave you with this quote about what's to come. It's from the president of the Battery Park City Authority, Meyer Frucher. There have been two great real estate deals in the history of New York. The first was when the Dutch bought the island of Manhattan. The second was when the Canadians bought the island again. Amazing. Unbelievable. I'm getting goosebumps. That's it for the promote podcast. We will wrap up our tale of the Reichmans, which could honestly be a ten parter next time. We're sorry to leave you hanging in escrow. Will Krasne (37:05) least we put your interest in an interest bearing account in escrow. Hiten Samtani (37:10) Thanks again to our sponsors who helped make this happen. Loanboss, the best in class CRE debt management software. Find them at loanboss.com. Will Krasne (37:17) Real property captive, the first group captive for mid-market owners, find them at rpcaptive.com. Hiten Samtani (37:23) And Bravo Capital. They have a new HUD Express Lane assessment tool. You can check it out at BravoCapital.com. This is one of my favorite stories. Thanks for doing it with me, man. Will Krasne (37:32) Of course, it's a pleasure. I'm really excited for part two. Hiten Samtani (37:35) Ciao.