Latest / The Promote Podcast / Soho House Postgame And Billion-Dollar Capstacks
Transcript
- Hiten Samtani (00:03) What you're about to hear is an exchange between Albert Behler the CEO of embattled office read Paramount Group, and his ex-girlfriend at Guardian Services. Now that's a security firm that Behler pushed a no-bid contract towards for his massive Manhattan office tower. Will Krasne (00:17) you Hiten Samtani (00:19) How are you? Hope all well? Talk tomorrow? Will Krasne (00:23) Yes, please call me anytime. Xoxo. Hiten Samtani (00:27) Time for lunch? Will Krasne (00:29) That would be so nice to see you. Yes, I am available. Hiten Samtani (00:33) 1230, Le Bernardin Lounge. Perfect. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm normally Hiten Samtani Will Krasne (00:47) and I'm Will Krasne. ⁓ Hiten Samtani (00:50) We had to start with that because of how glorious it is, but it's kind of a non sequitur, and we have much bigger fish to fry today. We're talking Soho House. Can Tyler Morse and Ashton Kutcher make the members-only club cool again and profitable again? Will Krasne (01:02) despite the appearance of Apollo. Hiten Samtani (01:04) We then get into the debt stack at two Manhattan megadeals that just closed, RXR's 590 Madison buy and Mickey Naftali's ultra luxury condo bet at 800 Fifth Avenue. Finally, we talk about the original sin of crowdfunding. Yieldstreet investors are facing total losses. Is that the rule rather than the exception? Will Krasne (01:24) some of Yield Street's investors are facing total losses also, so who knows? Hiten Samtani (01:28) pretty bad, man. It's really, really bad. Just a couple housekeeping notes before we begin. If you haven't already, please write us a review, go to Apple or Spotify. Helps us a ton to get discovered among fellow CRE maniacs. Will Krasne (01:39) For feedback on the show and ideas, hit up Haten at podcast@thepromote.com because again, I have thin skin and don't want to hear anything bad. Hiten Samtani (01:47) And if you want to reach our devoted audience with your brand messaging, reach out to partnerships at thepromote.com. That's partnerships at thepromote.com. All right, let's go. Well, take us back to your days as a yuppie queuing up to get into Soho House. Will Krasne (02:03) So full disclosure, I was rejected from Soho ⁓ Hiten Samtani (02:07) ⁓ Twice. For being like a finance nerd or what? Well. Will Krasne (02:11) The second time I like to think that it was COVID because I applied in mid February 2020 and then they said they reviewed at the end of the quarter. So I like to think I got lost in the shuffle. Hiten Samtani (02:22) There zero hint of bitterness in Will's voice as you will hear. Will Krasne (02:25) Also was a member of Soho Works at Dumbo House, which was the absolute best deal on shared office in the entire world. It was like $300 a month and they had the super fancy Zero Cal Pellegrino. I drank like 15 a day. Oh yeah. And I was getting like my entire membership back just through Pellegrino. Hiten Samtani (02:40) Chows? Yeah. I love the Chows. sound like casual observations, but they kind of speak to the problem here a little bit, don't they? Will Krasne (02:51) yeah, it was so funny because every time, like when Dan Loeb's letter came out about Soho House, I'm like, yeah, goddamn right, like this thing is completely like, not sustainable. I'm drinking them out of Hellsend Home with this Pellegrino. Hiten Samtani (03:05) So let's back up. Why are we talking about Soho House right now? There is a deal in place to take it private, I believe at a $2.7 billion valuation. And there's a couple of interesting characters in the mix. Will Krasne (03:16) So Ron Burkle, first of all, is just one of the Z-like characters over the last 20 years. He's in film production. He's involved with Taylor Sheridan and the nonsense with Paramount. think it was a big Clinton booster. There's a whole Ron Burkle thing. The two guys I think we really want to mention. The first is someone who's very well known within Hiten Samtani (03:21) Your K-Pug companies? Yeah, he's just all- stores like Classic Houses. Will Krasne (03:40) real estate private equity, particularly in the hotel space, Tyler Morse over at MCR. We'll get into him because he's a very important part of this. And I don't think he's as well known as the other guy we're about to mention. The other, of course, is Ashton Kutcher. Hey. Hiten Samtani (03:54) Mr. Demi Moore. Will Krasne (03:55) One of the earliest tweeters, various backer, various tech platform. Hiten Samtani (03:59) He was involved with Adam Newman at 1.2. Yes. Was it WeWork? Will Krasne (04:03) Yes, we want to get into Tyler Morse because I think he's really the key man here. And Soho House is not actually a hotel by itself. It's a private members club and Tyler Morse is a hotel guy. Hiten Samtani (04:14) And he's generally like in select service kind of hotels, right? Either one of the largest owners of Marriott's and Hilton's across the country. Will Krasne (04:21) Yes, so MCR has raised a series of funds and they've done very well, especially early on, focusing on select service. And so select service is exactly what it sounds like. There are only a select amount of services at this hotel. You can't go down to the restaurant and order a $17 diet coke. You have a free continental breakfast until 9 a.m. You got to fight off, you know, the government contractors down there at six o'clock in the morning for like the good eggs. Hiten Samtani (04:44) It's the Keurig in the room with a couple of pods. Will Krasne (04:49) But it's a much better business than full service because the only good business in the hotel business ever since long distance calling fell by the wayside is renting the room. And so at select service hotels, that's all you do. And so you can staff them more cheaply. You can build them more cheaply. And NOI margins are much higher. So they are very good business. to run those well, you have to be super focused on costs. You have to be an operations assassin. Hiten Samtani (05:13) So in that fairly specialized world, I would imagine that Tyler Morris is one of the G's, right? Will Krasne (05:19) Absolutely. Like there's not that many purely hospitality focused firms out there. KSL, who we've talked about previously, MCR has won. Blackstone historically has done a lot of hotels. And Starwood is really important to the story as well because what begat Tyler ⁓ was Starwood and not even Starwood Capital Group, this was Starwood Hotel. So we're really going back in the day. So Tyler had the Barry's guy job. Hiten Samtani (05:44) Wait, wait, wait, What is the Barry's guy job? That sounds like a very, very fun concept. Will Krasne (05:50) Every AI founder now has like a chief of staff and this was like very early on like a chief of staff type role but you're really just like the guy, the guy Friday. You're the operating system for Barry's life basically. Hiten Samtani (06:05) I remember you once describing Barry Sternlicht of Starwood as a nation state and I thought that was a really great way to put it. He's really like the center of the empire and so he has these vassals in a sense. Will Krasne (06:18) It's not even just like, he has vassals. Like when I say he's a nation state, like the business of him is so big. It's not just him, it's any of these guys. John Gray Blackstone, same way. All right, let's get on with it. Battleship's turn, like based on a look. You are not like the blunt instrument, but you control access, helps set the schedule. You get him back and forth to places. You like do the briefings. Hiten Samtani (06:43) One of the famous chiefs of staff from our industry is Rob Refkin. I think he was chief of staff at Goldman before he started Compass. Will Krasne (06:49) Good for him. I saw him at Lafayette one time. Hiten Samtani (06:51) If you're in that position, you kind of garner tremendous influence and you know everyone, right? Because everyone Barry knows, you kind of know too. Will Krasne (06:57) Totally, you have a ton of visibility. So it is a, I would say it's a very high beta position where if it goes well, it can go really well. And if it goes bad, it can go really bad. Hiten Samtani (07:10) So there's two exits out of that thing. You become the heir apparent for someone like Barry Sternlicht or you step out and do your own thing. Will Krasne (07:17) you become like a maid guy. ⁓ Tyler, one of the first guys who's had this job and ends up starting MCR. We said they were historically select service hotels. So if you go look at their fund returns, which their decks are out there, you can see they've slowly gone down over time. They've drifted into like broader hospitality platforms, show your assets. So famously they did the TWA hotel, which I have to say is extremely fucking cool. Hiten Samtani (07:43) one of the coolest executions I wonder what it looks like from a ROI standpoint. It's not an easy and not a cheap job. Will Krasne (07:50) Definitely not either one of those. Also did the Highline Hotel and then also ancillary stuff. So they've invested in like some parking tech companies, some other hospitality tech platforms. Hiten Samtani (08:02) you're trying to say is going from faceless commodity that is a proven business to these little more bespoke one-off opportunities that come up. Will Krasne (08:09) Yes, exactly. And all of them hospitality related. Yeah. And they've moved away from that again, because this is, again, it's not even really a hotel. Hiten Samtani (08:19) It might be helpful to break down exactly what Soho House is. It's a network of about 40 odd clubs across multiple countries, and they have a membership base of, I want to say, just under 300,000 people. Membership can be like 5,000 bucks a year. Will Krasne (08:34) That's a lot of First National Bank of Dad paying for that, I can tell you. Hiten Samtani (08:37) Exactly. So what is the play here? Will Krasne (08:40) These are all generally like very good real estate in gateway markets. That's sort of the whole gestalt of the things. The meatpacking so-and-so house is famous. Like it was in Sex and the City. Like Samantha had to like wait to get in or something. ⁓ Hiten Samtani (08:47) super prime locations. know who I But we can't. Will Krasne (08:59) I can't imitate you right now. I remember this exactly, but I'm pretending that I don't. It is hospitality in that they're clubs, but they're not hotels. So to run these as hotels kind of doesn't make sense because the room count isn't high enough to make the profitability work, especially with the service level that you need to have there. And what we mean by that is I can run a Hilton Garden, or I can't, but like MCR could run a Hilton Garden Inn with like six employees maybe, like F to full-time equivalents. Hiten Samtani (09:25) six pateils but maybe 20 normal guys. Will Krasne (09:28) No, no, six, no, six like full-time people. No, I know what you're saying, but the whole point of select services is the margins are really good because you don't have to staff them much. At the super high end, you need to staff really high because everything is super high touch. You can't make that work with like nine keys unless it's like Splendido mare, which we've talked about, you know, where LVM agent does not care about profitability. It's all about having that be a showroom. I don't know how that's really the case here. Hiten Samtani (09:31) The tale was an ethnic joke, but that's okay. There's not that much real estate in this playbook as of now, unless they go around and do something a little different. Will Krasne (10:02) issue with this big public company is that the growth is like completely against what makes it popular, which is exclusivity. Hiten Samtani (10:11) fits a free for all like movie pass is it still effective? Will Krasne (10:15) Right. Never forget that the quickest way which Silicon Valley has shown us time and time again is to sell dollars for 90 cents. And the other thing is there's a ton of competition in the private member club space. I mean, just think in the last however many years alone, like San Francisco, they bungalows, like they've come to New York. Hiten Samtani (10:31) I had to tape my phone when I went there. was annoying. Really? Yeah. They will tape it for you. Will Krasne (10:36) zero bond in New York. It's where you can stay away with the boys before you wake up with the men. There's a lot of compression on the side of you're just going to keep it and run it as members clubs. And then there's a lot of challenges if you're going to run it as a hotel company. So absent some sort of Ashton Kutcher voodoo to make it cool again or do something there. Like I don't really understand this. ⁓ Hiten Samtani (10:38) Eric Adams, baby. ⁓ Less interesting to us, the Ashton Angle. What is interesting to us though, is the third player here, Apollo Global Management. They're coming in with a 700 million slice of money. Will Krasne (11:13) It doesn't seem like their type of business. Like there's not really like assets here. There's not really cash flow. It hasn't been profitable. Hiten Samtani (11:18) It's just like a theme money that needs to go somewhere. We've talked a lot about how Apollo, KKR, Blackstone, they've all got these giant proceeds from their insurance businesses either owned or partnered with, and they're like pumping it into private credit deals. And there's a great quote. Did you see the quote? And I think it was in the Wall Street Journal article, a blind quote saying, the investment firm was also central to the deal that people said like they wanted to, they really wanted to emphasize that Apollo was core to this whole thing happening. Will Krasne (11:48) They brought the box. Hiten Samtani (11:49) What's the exit here? Is this an LVMH buying this thing for a big markup in 10 years? What? do do? Will Krasne (11:55) No, I don't think so. LVMH already has their own brands. They've got Belmond, they've got the Mayborn, which they've expanded. Isheval Blanc, they don't need more. I can see at a high level how this makes sense. We got a great hospitality guy, we got a cool celebrity who can make this happen, and then we've got a financial juggernaut who can write the checks. But I just don't know at a micro level how you make this profitable on a four-wall clubs every year. Hiten Samtani (12:03) Cheval blanc. Last Christmas, they had an offer that was valued at about $1.7 billion. I think this was an offer, internal offer. I guess it's a Ron Burkle offer. Will Krasne (12:34) I think Burkle is trying to do a take under. Hiten Samtani (12:36) Yeah, and Dan Loeb was having none of that. He's an activist investor who took a stake in the company and was like, yeah, that one's not going to happen. So this one's coming in at a much higher valuation, 2.7 billion. Will Krasne (12:47) I think was 80 % above the VWAP. I think he owns a big chunk of it. I think he's rolling and he's going to be chairman. Those are going to be some excellent board meetings between Burkle, Apollo, Ashton Kutcher, and Tyler Morse. And don't sleep on my guy Tyler because he might just be throwing some elbows in there. Hiten Samtani (12:50) What is Burkle's role now? Will Krasne (13:13) So Groucho Marx said he never wanted to join a club that would actually have him. And I think this unholy combination of Tyler Morse, Apollo Global, Ron Burkle, and Hestia Kutcher are going to challenge that notion. Hiten Samtani (13:31) imagine that a lot of the people who were vying to get into Soho House in mid 2010s are now vying to take office space at 590 Madison or perhaps a pad at 800 Fifth Avenue. Will Krasne (13:46) I think you're wrong. think it's the dads of the people who are trying to buy these condos. Hiten Samtani (13:49) That is very valid. Important caveat, but listen, two massive deals closed in Manhattan, really, really important deals for the market very closely watch the first 590 Madison Avenue, which is also known as the IBM tower closed for like a billion 1.08 billion, which is the first billion dollar office trade fee simple billion dollar office trade in Manhattan since 2019. So that's a big deal for the market. And the second one is Mickey Naftali closed on his purchase of 800 Fifth Avenue. This is going to be a moonshot bet. that Manhattan is ready for 11,000 square foot condos. So these are two deals I thought it'd be fun to get into the cap stacks. So let's start with 590 Madison. RXR is the buyer. Elliott Investment Management is the partner, the equity partner. And the lender is, da da da da, Athene. So again, we've talked about insurance money, just chomping at the bit to try to get into the action. Champing, fuck that. I use the one that I like. Will Krasne (14:42) A theme. camping at the bitch. Hiten Samtani (14:53) but they're trying to get in on the action on all these big ticket real estate deals and we're seeing so much of this money pour in. Athena is now one of the alpha players in the space and that happened very, very quickly. And here, particularly interesting, so it's about 785 in total debt that they're offering. 135 million of that is Mez. I thought that's a lot of Mez. Will Krasne (15:16) 785 up front, I think there's an additional 60 for TI's, LC's and whatnot. That is a lot of mezz. And frankly, I'm a little bit surprised that Elliott agrees to be common behind that mezz. Hiten Samtani (15:31) there's no path to real returns in or what? Will Krasne (15:33) I speak from experience, like trying to pitch institutions when you've got a big slice of mezz or preff in front of them is not great. Hiten Samtani (15:39) It may be why GoPartners went public on the Canadian Stock Exchange just a month or so ago, because they had all that preff loaded on that portfolio. Will Krasne (15:46) That's exactly right. So I'm surprised that Elliott agrees to be LP equity with this in the cap stack. That said, it juice the returns if the deal works because you just put in less equity. Mez is a lot tighter than you might think for this, like the coupons maybe like seven or eight, which isn't as bad. Hiten Samtani (16:02) traditionally I think of it as like 10, 11, right? Will Krasne (16:05) somewhere around there, in which case you're saying, oh, god, we've got $14 million of current pay on this while we're trying to reposition the building. But there is, think, pretty good mark to market in the rent roll. RxR knows what they're doing on the management and leasing side. if they're able to juice the building, they can use the TI money to help improve it and attract more tenants and get those folks in. Then you're thinking, OK, our basis is what? Hiten Samtani (16:33) They're putting about 300 million in equity on this thing. Exactly 1 million square feet. Will Krasne (16:35) How big is the building again? Okay, so they're in it for, you know, a thousand a foot. Yeah. We can get the rents up to 120, 150. Hiten Samtani (16:42) I can give you some insight. Our friends at Comstack helped a little bit with the data here, but they were 77 % leased as of summer 24. Then we had two big deals signed. One was LVMH and one was Apollo. And collectively they took about 200,000 square feet. LVMH started their lease at 85 bucks a foot, which is probably a little bit under what I would have thought. And they have 24 months of free rent. then Apollo has a lease that starts at 98 bucks a foot. they have 15 months of free rent and they're both in their free rent periods at the moment. Samex, which is a buildings material firm, is paying like one fifties a foot, which is kind of where you get the building to. Yeah. But there's not that much crazy upside. Just under 7 % of the building's currently space is set to expire in the next 24 months. So there's not that much you can do in the very, very near term. Will Krasne (17:34) sound like it, but at same time, like you need to buy deal with the cash flows right now and this cash flows. Now that said, I think the Mez is going to eat up a lot of that cash. Hiten Samtani (17:43) You mean like the payments on the mess? So the debt service will eat up a lot of the Will Krasne (17:45) Yeah. Rough numbers. They paid a billion dollars. What cap rate are they buying at? Six and a half? All right, that's $65 million of NOI. You're paying 10 of it to the Mez before you get to the senior. You got $6.50 a senior. And if that's at six, you're paying $36 million or whatever. You assume it's not amortizing or anything of that. So that's $46 million. You got like $20 million of... ⁓ and that's before CapEx, that's before leasing commissions, that's before TIs. Hiten Samtani (18:17) is a 60 million slice held back for for TIs and capex, right? Will Krasne (18:21) Yeah, but like then you're just increasing your debt service too. So I mean, the cash flow is going to be tight. But again, that's sort of like what juices the equity returns. So if they're able to execute, you know, they get those 7%, they roll them to 150 a foot, they get a little bit more velocity in three, four years, you know, there's a 14, $1,500 a foot exit here and everyone makes really nice returns. I think that's that's sort of rough math. Hiten Samtani (18:44) was STRS Ohio, which is the pension fund that's been in, they've been embroiled in some crazy infighting. I don't know if you ever read the pension trades, but sometimes it can get really ugly. It's so good. Like all the directors were at each other's throats. There was calls for resignation, et cetera, but they were supposed to close by end July and ARXR had been negotiating with our boys from Kale Street. The promote has featured them in our quiet Kings of Capital list, which I'll put in the show notes. And Kale Street was supposed to lead the financing here. That didn't happen. And then RxR had to negotiate an extension of two weeks, which cost them 5 million bucks to get that extra time. So Apollo comes in, but there is still a possibility that Kale Street is going to take a part of Apollo's debt at some point. Kale likes to do that anyway. Will Krasne (19:29) Like someone sells off a piece of it. This is like a type of deal that used to get done in 2014, 2015. And it's the first one we've seen like this. I'm really surprised that Elliott makes an office bet like this where there's so much mezz ahead of them. Hiten Samtani (19:31) Yeah, exactly. the Eastl LinkedIn post. I really enjoyed that part. Eastl did like this animated GIF on LinkedIn which says, first fee simple billion dollar transaction since 2019. And those kind of details are what the promote lives for. Alright, let's take a carriage over to 805th Avenue where our boy Mickey Naftali, who we've professed to being fans of, has just closed on that site, which is the Elliott Spitzer Rental Building, which is on the site, for $810 million. Now he's just landed his financing, $675 million. Who did it come from? Syndicate. Will Krasne (20:19) Syndicate, JPM and Golden Tree, a big private credit player. Hiten Samtani (20:24) Did you see the video of Steven Tannenbaum of Golden Tree explaining to David Rubenstein how private credit works in his bright suit? think of credit as a contract. In credit, you have a return. Will Krasne (20:35) I'm missing all these videos. You gotta send them to me. I do read the promote Hiten Samtani (20:37) You're not reading the promoter anymore? What's going on? Okay, good. So golden trees come in. didn't really know much about them. Do you have a sense of what they're about? I know they have what 60 billion under management. Will Krasne (20:49) They're just one of these massive firms that put out a ton of money and then the founders are worth like $11 billion or something. Hiten Samtani (20:55) Naftali also scored equity. We suspected that the money would come from his buddy Len Blavatnik, Access Industries, who he's been partnering with on those Brooklyn megaprojects. turns out it's family offices for Mexico, Israel and Japan, apparently, according to Bloomberg. Will Krasne (21:11) Everyone shits on multifamily syndicators and the Sun Bell, but if you're syndicating multifamily on Fifth Avenue, that's totally cool. Hiten Samtani (21:19) It's totally above board and it's very respectable. This was a Newmark deal all the way. Spies and Harmon did the acquisition here and then Jordy Rochelob and Nick Scribani. Do you know anything about Nick Scribani? I feel like that name's all over the place now. Will Krasne (21:32) He's on the come up, good for him. Hiten Samtani (21:34) Yeah, he's doing well. So they arranged the debt. Right now, the building that's on the site is overbuilt. It's 355,000 square feet. these reports of demolishing the building are a little weird to me. ⁓ I guess you could like just strip it down but not tear it. Will Krasne (21:49) We talked about this on our previous episode where you kind of do what they did at 425 fifth where if you keep like enough of the initial building itself you can basically rebuild the building as a new building. The issue is some of the floor plans here are small, a little wonky, and if you're gonna get 11,000 if you need like brand new functional floor plans and the only way to do that is take it down. Hiten Samtani (22:12) So 2300 a foot land basis. ⁓ You're gonna go for 11,000 a foot. Will Krasne (22:18) is such a big number. But as we said before, this is a, like A plus isn't a high enough grade for how good the site is. And you talk about a guy who's done it on the same corner because he did it at the plaza, which is just as complicated a project, even if, you know, Scott Schlieffer ate his deposit rather than clothes because the condo construction was apparently like so bad. he knows how to work in New York. He knows to work on this corner. And if anyone can do it, it's Mickey. And I think New York might be ready for a Fifth Avenue tower like this. look at the sales downtown, 80 Clarkson, that's selling really fast. Hiten Samtani (22:53) And as you've talked about, that's a charitably a B-plus location. Methadone clinics and such. Will Krasne (22:58) Yeah, exactly. As they said the men in blazers, it's the craft part of Soho. think New York just a lot of the time it's like what are we do for and you know, like you reread House of Outrageous Fortune and like people just wanted like a big pre-war and Stern apartment complex Hiten Samtani (23:17) that point when Gary built his building 157, mean, the Russians were just hankering for a piece of New York, the Chinese were hankering for a piece of New York, and they were willing to pay five, six, seven thousand a foot to get it. That bar pool might be tapped out. But like Fifth Avenue, Central Park, I mean, that's that's freaking classic. Will Krasne (23:35) We've got equity markets at all time highs. We've got crypto booming. Every kind of grift is going well. So, you maybe this is like time for a new buyer who's interested in this type of product. so much of this is timing. Like Mickey is as skilled as they come. He's as good as they come at this type of project. But you're at the mercy of the gods on a project like this. And if he gets the timing right, it's going to work. Hiten Samtani (24:06) So crowdfunding, fucked by design or what? Will Krasne (24:10) It's so stupid. This is a real estate SPAC. Hiten Samtani (24:14) I feel like this happens over and over and over again. Sometimes it's outright wrongdoing slash fraud. Ellie Schwartz with Crowdstreet and the failure of that company to keep the money in escrow. And now we've got Yieldstreet, which is actually probably the biggest player in the space. They acquired our boys at Cadre a little while ago. Will Krasne (24:33) Man, Ryan, Sean yet again. Hiten Samtani (24:36) Why we're talking about this right now is that CNBC did this really great investigation where they analyzed 30 deals. Out of those 30 deals, we had four wipeouts, 23 were watchlisted, and then three are currently marked active, but are no longer making distributions. Will Krasne (24:52) clarify, four wipeouts mean equity all gone. All watch listed means probably not getting back the equity. Hiten Samtani (24:55) All gone. Wipe. That's right. Yield Street's been blaming the turn in interest rates as well as overall market conditions which have severely compressed values. But I think that there is more here. I do not think that this bad performance is a one-off. I actually think that crowdfunding, real estate crowdfunding is designed to kind of give retail investors the dregs of what's going out there. Will Krasne (25:21) is because think of it this way, if you are one of these firms that has a real, but you're an investment management business, you have other investors and you can't raise the money from them, like those deals go here. That's where it goes because you could raise the money elsewhere. Hiten Samtani (25:33) We've contradicted this point before. We've said like if you can go raise retail money, you're much better off in many cases, right? Your margins are better, your fees are better. Will Krasne (25:42) Yeah, but you're not paying the VIG to Yieldstreet. Like if you can go raise the retail money directly yourself, yes, go do that. But if you're like, I can't even do that. Like let me just go to Yieldstreet, Crowdstreet, Peerstreet was a company. Why are they all called street? Who on earth? Hiten Samtani (25:57) Someone started the convention and became a meme and they went from there. Should we point out one of them? So there was 2010 West End Avenue in Nashville. Now this was a building that was part owned by? Flow. Flow. Adam Newman's It's a Feeling. 358 unit rental in Nashville. This was bleeding cash. CIM had about 120 million of debt on this property and Yield Street needed to go out there and purchase a rate cap. Will Krasne (26:00) Yeah, these deals I mean Hiten Samtani (26:26) Did you see the offering? So, annualized returns that were basically touted in the offering were 20%. Cool. A few months later, we reported that Flow was searching for rescue pref for this property. Will Krasne (26:27) My eyes are gonna explode. Yeah, and then eventually it sold Tishman for less than... Hiten Samtani (26:44) Under the debt. We are reaching out to share difficult news, Yieldstreet told investors of the Nashville project. Following multiple restructuring attempts, the property has been sold to Tishman Spire, resulting in a complete loss of capital for investors. Will Krasne (26:58) The funny thing is it's not just a complete loss of capital, it's an extra loss of capital post the depreciation recapture. Hiten Samtani (27:04) You're seeing a lot of people burned. There was a dude who spoke up in the article. said, there isn't a day that goes by without me saying, I can't believe what happened. This is a dude who invested about 300,000 in the Flow Project. I consider myself moderately financially savvy and I got duped by this company and by this company he's referring to Yieldstreet. Will Krasne (27:24) I feel terrible for this guy. I feel terrible for everyone who lost money in these deals because when you're going through Yieldstreet, what they're trying to do is basically disintermediate financial professionals. So if you were to go to your wealth manager and they're like, put me in this Yieldstreet deal, the guy's gonna be like, no, what are you talking about? And it's not this guy's fault. It's not your fault. Don't fuck with me. You know, it's not. And it's the whole crowdfunding mechanism praying. Hiten Samtani (27:50) democratizing investment, all that. Will Krasne (27:53) We're democratizing and nesting, which means just like we're trying to get the dumbest fucking people and get it and trying to steal their money. Hiten Samtani (27:58) Just a caveat, like Yield Street has not been accused of any wrongdoing as such. This is different from where, know, Crowd Street's being sued for over the Ellie Schwartz thing. Very, very different. Will Krasne (28:09) Yes, of course. It's immoral. It's not illegal. The whole point of this is to disintermediate financial professionals and to take retail people's money who aren't necessarily sophisticated real estate investors. I just broadly believe that absent some sort of specific view, you shouldn't be putting money you can't lose into a real estate deal like this. This is something that really matters to me. The people who you take money from, it's a huge responsibility. And if you're trying to like, voice a deal on someone or you're doing fees or like going through this crowdfunding, you have the layer of people between the firm raising the money itself and the investors. they say, Yeah, there's a lot of buffers and you you can think, ⁓ this must be safe. And it's not safe. There's risk everywhere. Hiten Samtani (28:50) They got a lot of buffers. ⁓ Will Krasne (29:01) People have to be honest about the risk. They're promising 20 % annualized returns on rescue preps. Like, that's just awful. It's just awful. And I'm sorry like I'm getting a little heated up, but it's just, that is like so wrong. Hiten Samtani (29:12) The 20 % is on what they were trying to do with like purchasing rate caps and stuff. Like they were going. That's, that's. Yeah. Will Krasne (29:17) I'm saying that worse like we buy the rate cap. We're gonna get a 20 % return on that. Are you fucking kidding me? Like get out of Hiten Samtani (29:23) Have you ever zoomed out and seen kind of the universe of like players in the space? It's a pretty incestuous web of people. Should I break it down a little bit? A16Z, Andreessen Horowitz. Of course. They found Kadre at this insane valuation a few years ago, $800 million. Will Krasne (29:31) Yeah, I'll see you. Those guys, A16Z never miss. Good for them. Hiten Samtani (29:44) They fund Cadre at an $800 million valuation. That's in 2018. Yield Street acquires Cadre five years later, six years later, for reportedly $100 million. So there's a lot of investors have lost a lot of money in that interim period. Guess who else A16Z backed? Will Krasne (30:04) I mean, flow. Hiten Samtani (30:05) Yeah, they're the biggest investor in flow and they're a partner. It's not just the VC investment, as we've talked about, there's like an extra layer of things here where A16Z has a share in the actual portfolio too. So they own part of the real estate. Will Krasne (30:17) I mean, I'm kinda glad, because then I get to lose money two ways. Hiten Samtani (30:20) When the Yield Street cadre deal happened, Ilan Stern, who's one of Adam Newman's guys, like he helps run the family office that came out of the golden parachute from WeWork and stuff. And he commented on LinkedIn on the post, think it was Ryan Williams post, and he said, been excited about this for a very long time. It's the crew. Will Krasne (30:38) It's great. It's just fantastic. Just all the way around. Hiten Samtani (30:42) At what point does crowdfunding as a model just break? Will Krasne (30:46) this is somewhere where regulations need to protect individual investors from themselves. And saying that you're democratizing investing or changing the accredited investor statuses or making the qualified purchaser designation less, I think that's all really bad. Because if you have a $1 million net worth, first of all, congratulations. That's a lot of money. You've worked really hard for it. You need zero private real estate exposure. Like, none of it. You need none. The level at which you start that being an option is so high that the folks who are at that level and where it's appropriate, they're never going to go to Yieldstreet because they're getting pitched to be investors in like various real estate private equity funds or very high yield sponsors or like pitching them directly. Like they don't need Yieldstreet. Like this exists to take money from people who can't afford to lose it. Hiten Samtani (31:40) That's it for the Promote Podcast this week. We'll be back next week with more CRE insider goodness. Will Krasne (31:45) Please go write us a review on Apple, Spotify, other podcasting platforms. Hiten Samtani (31:51) It helps us a lot to get discovered by more CRE crazies. Will Krasne (31:54) I don't even want CRE crazies, I want regular crazies. Let's get some Swifties. Let's get some people from New Heights, like come on over, the water's warm. Hiten Samtani (31:58) I think we're going to get some regular crazy For feedback on the show and ideas, hit us up or hit me up at podcast at thepromote.com. That's podcast at thepromote.com. Will Krasne (32:10) And if you want to reach out to our devoted audience of not yet Swifties, but soon to be Swifties with your brand message, reach out at partnerships at thepromote.com. That's partnerships at thepromote.com. Hiten Samtani (32:21) Well, that was a lot of fun man. Thank you. Ciao. Will Krasne (32:24) Thank you. We got Ashton Kutcher, Ron Burkle, Tyler Morse, Pollo in board meetings. Who knows how that's gonna go? The boys. Two big deals, the biggest office deal in New York. Hiten Samtani (32:31) boys.