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Hail Caesar, CoStar's M&A Mania & a ZOMbie Developer · The Promote Podcast

• Hiten Samtani (00:03) So I finally made it to JP Morgan's Sky Temple of Capitalism. And it was because of this podcast. Will Krasne (00:08) Jamie, let you in to use the restroom. Hiten Samtani (00:11) I'm in midtown. I'm leaving a meeting. I hear a guy yell, ten31 the promote. And initially I thought you had just hired one of your actor buddies to prank me. So it's this young CRE striver from JP Morgan. He's hooked on the pod. He showed me texts where he's sending episodes to all his friends. And then he's like, Do you want to tour the building? I'm like, Absolutely. He starts hitting me with lines from the show as we're going around. And what was initially kind of a starstruck moment for him. Will Krasne (00:20) It was Jeremy Strong, yes. Hiten Samtani (00:40) Honestly turned into like an inspiring moment for me. This is this Dominican kid from East New York, came from nothing. Dad used to work the graveyard shift at a cheese factory. Mom was a nanny. Wow. And now he's working in the ultimate symbol of finance. Will Krasne (00:54) It's incredible. The American dream is alive and well. Hiten Samtani (01:06) Welcome back to the Promote Podcast, your insider guide to the money and mania of the C R markets. I'm Hiten Samtani. Will Krasne (01:11) And I'm Will Krasne. Hiten Samtani (01:13) A shout out to our sponsors, Loan Boss, the best-in-class CRE debt management software. Will Krasne (01:17) Bravo Capital, a leading HUD and Bridge Lender that lives and breathes capstacks. Hiten Samtani (01:21) And Real Property Captive, the first group captive insurance for mid-market owners. This week we look at Texas billionaire Tilman Fertita's $18 billion mega deal for the Caesars Entertainment Empire. This is really just an excuse for us to talk about Tilman, one of the industry's capital C characters. Next, we dive into CoStar's 800 million acquisition of home data startup Zonda. It's really part of Andy Florence's grand quest to control every little piece of information in the real estate universe. Will Krasne (01:37) an all timer. Hiten Samtani (01:49) And finally, it might be curtains for a prominent multifamily developer. We're told that Zom Living is prepping a bankruptcy filing. Will Krasne (01:56) Let's get started though before any of that with the punch list, our signature rundown of the newsiest news in CRE. Ten, you are in New York. I am. The capital of capital and the socialist hellscape of the Mamdaniverse. What what are your thoughts? Hiten Samtani (02:16) Dude, it's ripping on every metric. The restaurants are full. There's beautiful people everywhere. Everyone's doing business. Everyone's taking meetings. That's Will Krasne (02:25) What you love to hear, I got a call at Friday at nine PM from Friend of the Pod and he was walking his dog in bushwick. Yeah. He says it's one of those nights that makes you wonder how you can be anywhere other than New York because every bar is full, everyone's young, everyone's hot. And I can tell you living outside of New York now, everyone is not hot. Hiten Samtani (02:30) yeah, he told me about it. We were hanging out. Yeah. It is really cool to see it firing on all cylinders, but this is what it's all about. Will Krasne (02:48) Well speaking of things powering on cylinders. Banks are back. We're f baby Hiten Samtani (02:54) Banks are back. CRE originations are up 80% year over year in Q1, just north of $450 billion now. Obviously, the big story of the last couple of years has been banks retreating and debt funds and other exotic financiers stepped into the mix. But now banks are back. One of my buddies was telling me, I'm gonna quote him verbatim here. He said, spreads for direct lending are tight AF plus 200 to 225 range for 65% LTC. Will Krasne (03:21) I can confirm that for a couple of regional banks on industrial acquisitions in central Pennsylvania. That's true. And it's super competitive. And what's interesting too, the swap rates are actually way inside of term sofer or the treasuries. So that actually lends itself to being more competitive for banks because if you fix your rate via swap, it's actually inside of what you would fix at otherwise. Hiten Samtani (03:42) With the debt funds having kind of taken primacy in the cap stack, so to speak, what does all this mean for when you're out there trying to get one of these big loans done? Are you now a a price setter as a sponsor? Will Krasne (03:52) Right now, yeah, you absolutely are. Talk with anyone. The amount of debt capital out there is astonishing for almost everything. Yeah, equity no one wants to do equity. Everyone wants to do debt, code GP or pref. But there is a ton of debt capital out there for almost any project that's real. Hiten Samtani (04:00) Still can't find equity though. That's real is an operative word here, 'cause remember a few weeks ago we talked at LATA. Will Krasne (04:13) We're gonna bring that up forever. I can't wait for ten years from now. I go back to a couple of episodes ago and I said we really don't try to make fun or we're really not about spearing people except that guy. Hiten Samtani (04:20) ⁓ Except for this guy. Alright, next one. More bad news for S2. Over a quarter billion dollars in CMBS loans tied to three properties. This is Scott Everett, the prominent multifamily syndicator. They went to special servicing. Lots going on with that portfolio. Will Krasne (04:38) Not just that portfolio, there are other assets that are in pre-foreclosure or foreclosure. But these three specifically basically if you're going to special servicing, what it means is that you don't maintain the net cash flow necessary. Yeah. Hit your debt service coverage ratio. And CMBS tronch had underwritten when the loan was funded. I think though it is bad news, but like the Modest Mouse album says, it's good news for people who like bad news because Scott Everett also launched a development. fund focused on the sunbelt to take advantage of the dislocation that we've all talked about. And again, the reason I say this is good news overall is because the perfect mark of an institution is the ability to torch a bunch of equity and raise a lot more, which is what he's doing. Hiten Samtani (05:22) When you're building a platform, you just kind of have to forge ahead. Starwood doesn't talk about what what was the vehicle they don't really talk about anymore? Right. They're doing their own thing. They're going and raising something else. So even as all of this is happening to Scott, he's out there raising money and successfully in some cases for new vehicles and new ventures. And that he resembles our our boys at Brookfield, which is our next one. Will Krasne (05:28) Right. I just said that we don't try to make fun or really kick people while they're down. I think we might have to add Brookfield to the one kind of land out of Hiten Samtani (05:52) At least Ben Brown's very handsome. Yeah, right. According to Will's incel ⁓ chart preference. Will Krasne (05:59) my god. So this one come on. They sold three Bethesda Metro Center in Bethesda, Maryland, which is a great market. Fantastic location. I grew up just across the district line from there. But that's not what makes it great. They bought the property for $151 million in 2011. Haten, what did they sell it for? Hiten Samtani (06:20) Sounds like it's a rough trade, so I'm gonna say eighty. Will Krasne (06:22) They sold it for twenty million. They were down eighty seven percent. Hiten Samtani (06:30) Who's coming in on these things? I'm always interested who's carcass shopping. Will Krasne (06:34) Who's grave dancing? So it's a company I'd never heard of called Inrel Properties. Okay. And they did the same thing across the streets. They bought it out of severe distress and they took the office occupancy from 40% to 80% leased. And this property is 52% leased. The reason why there's this great office reset is because there's still demand for office space. We're seeing it in New York. The net absorption's off the charts. And that's predominantly for class A, but in D other markets and in New York as well. Hiten Samtani (06:51) So there's a lot of room to run. Will Krasne (07:03) It's really about resetting your basis so you can offer lower rents. Yes. If they're 87% lower basis, when again, they're gonna have TIs, LCs, they're gonna do a CapEx plan, what have you, but they can offer rents half, 75% lower than what the building needed previously to make the math work. And there's demand at that level. Hiten Samtani (07:22) They can show a thesis to a lender and say, hey, we've done this before, get the requisite financing they need, then to go and build out the product, make it semi-attractive at least. And then a semi-attractive product combined with below market rents is a very attractive product. Will Krasne (07:35) Right. The groups that are doing this in a very targeted fashion. If you pre build out suites, so you can just move in with your toothbrushes, I to say in million dollar listening RIP, if you're a professional services firm, you know, that needs five thousand square feet to have a built out office suite is very attractive. And so they're g able to do that at very competitive rates. At some point these things are just gonna be cash machines. I think the standout trade of this cycle is gonna be triperian partners buying Keystone Crossing. Okay. Hiten Samtani (08:02) Boy, is that front of the pod L. Will Krasne (08:05) And Jeff Karsh, they bought Keystone Crossing, which I think from DRA and I want to say Morgan Stanley, five buildings, a million plus square feet, and they bought it at a similar discount. Yeah. They're gonna do phenomenally well there, but with this type of strategy. So it is possible to go out there and execute, but it's hard to get loans. And as we said, it's really hard to get equity because even if you're shopping office distress, and there are a lot of folks out there who say we want distress, we want contrarian plays. It's like Ronnie Coleman says, Anybody wanna be a bodybuilder? We want distress, but not like that. Hiten Samtani (08:43) Next one. So we've talked about the crown, the stuff up a lip lads breaking up with the US real Yeah, the Groveners breaking up with the US real estate market. Our neighbors in the north have been doing this for a while too, and there's some stark new data showing just how intense it's been. Will Krasne (08:49) It's Rose Nurse. Canada has long been a source of capital for US real estate transactions and that transaction volume actually fell by a third year over year to about five billion for twelve months ending in Q one. That's already off of a lower base because that's less than half the average invested by Canadians over the past half decade. Hiten Samtani (09:16) Typically New York and other gateway markets in the US were their top destinations for most of that money. But now they're looking elsewhere. And you can see why, right? CPP's taking a bath here. yeah. OTERRA and Ivanhoe Cambridge took such baths that they actually were dissolved and merged into La Kites. It's been a bad time for the Canadians. And they it's funny because they typically would invest in top-tier properties with local partners like RXR, et cetera. Those guys have found new partners that are in keeping Will Krasne (09:42) ⁓ German capital has been very historically focused on they love office and they love SMAs. And I think that the SMA business, it's really fallen apart and not just for office, but for almost anything. If you're allocating to an SMA with a specific strategy, as the allocator, you are making the investment decision. And so it opens up a ton of career risk for you. Talked about RXR, Savannah. Yes. Those guys are really good office asset managers, office investors. But when you're going into the wood chipper What do they say about Larry Ellison? You can't get mad at Larry Ellison because you have to imagine Larry Ellison as a lawnmower and you're the grass and you can't hate the lawnmower for mowing the grass. Hiten Samtani (10:22) Fulfilling is manifest destiny exactly. Will Krasne (10:24) They're going go more towards blind pools and away from the US because again, the US office market, which was a huge attractor of capital for so long, is in still in the middle of a paradigm shift, as we just talked about. Hiten Samtani (10:37) Next one, Miami development drama is one of our emerging favorite topics. Will Krasne (10:43) Fantastic. So Fisher Island, man, whew, that's a pretty tony place. Hiten Samtani (10:48) It's where the ultra fru fru go to escape the merely frou fru. There was this one last great development parcel on the island, almost 10 acres of developable land. And it was bought by a company out of Chicago called HRP. They paid 180 million or something for it. When they did this deal, they apparently signed two simultaneous deals: a development agreement, which meant that they would demolish this hulking fuel depot right there. And then they were gonna do luxury condos, obviously, on the rest. There was this four acre piece of that deal that the Fisher Island Residents Association, which is how would you describe the Will Krasne (11:23) Strip mall guy talks about how you don't want to be on an HOA. It's the worst thing ever. Now imagine the richest people in the world who are incredibly opinionated in being in an HOA. Hiten Samtani (11:32) So HRP apparently had signed an option agreement that they would potentially convey four acres off the site to that residence association. Now the association alleges that HRP went and did the clandestine deal with Miami Dade County and is about to sell them the whole thing for 400 million. You might ask why didn't Miami Dade just buy this site by themselves? That's the right question because apparently they've been talks to take over or do something with the site for a very long time. In September, the county commissioner Oliver Gilbert described the failure to be proactive as, quote, really, really bad. He added, We've done some bad things before, but this isn't like the favorite position that I want. Will Krasne (12:14) Yeah, we're paying a massive markup with taxpayer money because we were lazy. It's not like a great position to be in. Hiten Samtani (12:21) Alright, that's it for the punch list. When we come back, we'll be hailing Caesar. Okay, I'm here with Aaron Crowitz from Bravo Capital. What are some of the elements of the business that you'd like to see come in or evolve in the next, let's call it twelve, eighteen months? More optimal Will Krasne (12:41) For quality. And if that's what your goal is, your question has to be, how can I attract more quality borrowers? And of course, higher leverage, lower rate, speed of execution, scalability, those all matter. But if you ask a borrower today, what do you want from your lender? They'll tell you, we want off-market deals, equity, and I want to bring in teams that can do that to not have a shoulder shrug. Hiten Samtani (12:48) Course. Will Krasne (13:09) When your borrower needs something, right? And to not say, sorry, like I can't do that, but to say, I will run through a wall for you and I'm gonna find a solution. Hiten Samtani (13:19) Thank you, Aaron, and where can people find you? People can come. Will Krasne (13:22) Find us at Bravo Capital dot Hiten Samtani (13:34) I survive, the country survives. I can tell you this, I'll survive this before the country does, okay? I'll out-survive the country, just like I out-survived the bags in 87, okay? The country will fold before I do. Will Krasne (13:50) Wasn't he like twenty four in eighty seven? Hiten Samtani (13:53) We're talking about one of the cowboys here. Tilman Fertita, Texas billionaire, just finalized a deal to buy the Caesars Entertainment extravaganza of an empire for what? 17.5 billion? Will Krasne (14:07) Yes, seventeen and a half billion, but twelve of that is dead. Hiten Samtani (14:11) That's part for the course. So let's talk someone Will Krasne (14:13) He's a guy buying Caesars. You know, the previous people who bought Caesars was Apollo. Like the opposite of a guy. What's interesting about him is you talk about guys who can control a company, have the liquidity or the ability to get the liquidity, which I think is the Tilman's specialty, to do something like this and put together and he's now gonna own one of the largest gaming conglomerates in the country. He's got the golden nugget, he's tried to merge that into Caesars, he's got Landry's, which encompasses a ton of restaurants, he's got the Houston Rockets, and he also has a pretty significant portfolio of C R E. The reason I want to talk about him is because he's one of these guys that if he didn't exist you'd have to make him up. He's literally got a T V show called Billionaire Boss or something. We have Hiten Samtani (14:52) Even mentioned that he's now the ambassador to Italy and San Marino. I just want the ambassadorship to San Marino. Sounds way more interesting, less work. Will Krasne (15:00) emblematic of the characters that came out of the 80s, but he's a little bit younger than your icons, than your Steve Wins. Hiten Samtani (15:08) That name kinda rings a bell. Fortita, that's there's another big Fortita are the brothers, the UFC Any relation? Will Krasne (15:13) Yeah, Frank and Lorenzo. Yeah, they're cousins. So they own station casinos. I think there's a little bit of a rivalry there. They're the most successful cousins, I think, outside of George Roberts and Henry Kravitz. So he started off a man about town in Houston in the eighties. He had restaurants. He was young and flashy. I think he tried to buy a couple percent of the rockets when he was like thirty-one for around two million dollars and ends up buying the rockets later for Much more than that. And he started off with restaurants and he was an operator. A lot of these guys are financial engineering things, and he has since done that a lot. He famously floated a massive bond issuance through Pertino Entertainment to buy the rockets. But he was known like Rupert Murdoch in news, where he could do every job in the restaurant. And he would go through and you're wasting silverware, you're you're throwing away food, or you're not being as efficient as you should be. Hiten Samtani (16:07) There's an interesting nugget from the Texas Monthly profile. We're talking about rejigging operations for an in-person restaurant to a heavily takeout restaurant. And I remember there's a line where he talks about how the line is set up and to reconfigure it to be all takeout just isn't feasible. So there was a level of detail there that a lot of these people do not have. Will Krasne (16:24) There's a line between talking about someone who's a deal maker and an operator, and they talk about the Wall Street deal makers. And those are the guys who just make the deals, because you can just pay the most always and make the deal. And what is it, bid up Bruce, like Bruce Ballsterstein very famously? This guy for all the flash and living large really could operate. He, like many, fell upon hard times in the SNL crisis. I think never declared bankruptcy, but was advised to several times and really worked his way out of it and just kept growing and growing and growing and created this. Cash flow engine out of the restaurant space and he had an eye for what was Landry's, I don't think is anyone's idea of per se. Sure. It's also not long John Silver's, it's attainable luxury, quote unquote, I guess. Hiten Samtani (17:06) I yeah, I I think about this a lot. Someone said this about Trump. Will Krasne (17:10) He's a poor person's ideal of what a rich guy looks like. Hiten Samtani (17:12) Exactly. And there is a whole category of services in F and B that caters to that. Opulence, but opulence at a two hundred dollar price point, maybe not a thousand dollar price point. Will Krasne (17:22) Exactly. He took his company public, he then took it private, took on a lot of risk and expanded into gaming and took on a lot of risk infloating this massive bond issuance to buy the rockets right when the covet hit. And as guy who owns hospitality and restaurant assets, that must have been a pretty scary time and was able to work his way through it. Hiten Samtani (17:41) Had to furlough what, like forty five thousand employees or something like that. Will Krasne (17:44) Some crazy number. And he's worked his way through it and really come out the other side. And he's now really liquid because he was able to execute a bunch of transactions and I think he borrowed more against the Rockets because their value skyrocketed. And he has since bought, just in the last couple of years, like a billion dollars worth of super high. Hiten Samtani (18:02) The River Oaks District Mall from JP Morgan's the post oak hotel. Yeah, he's got a lot of stuff. Will Krasne (18:08) And the Montage Laguna Beach, which he just paid a massive number for, I think last Hiten Samtani (18:12) that's where the IMN conference is. It's gorgeous. It's absolutely stunning. As we've talked about, one of the reasons we love CRE is it touches everything. When you're in the mix on sports and entertainment, when you're in the casino business, you're seeing real estate opportunities arise as you do your thing. You can also kind of create a lot of real estate opportunities out of those deals, right? You can activate areas around you. You can subdivide the parcels and do something fun. And I'm sure he's touched upon all of that. Will Krasne (18:37) This move too is something that is really tying in real estate, gaming, and sports. People talk about when why did Mark Cuban sell the Mavericks and sell specifically to the Adelson family who owns the Sands? And there's this conspiracy theory that they were trying to get gambling ⁓ legalized in Texas. Obviously, this would very much help Tilman Fertita as well. If you look around Texas state legislature races, There's been a lot of entities side of the gambling industry that have been shelling out capital to local government races and trying to put gambling friendly lawmakers in power. And if this happens and two families own the premier sports franchises, basketball franchises, I should say, like obviously the Cowboys are number one. Sure. In Texas, and they also have huge ties to the gambling industry. I mean, that's the great thing about real estate is that there's no such thing as insider trading. You can like put your finger on scale a little bit. Hiten Samtani (19:28) Acquiring Caesars puts Fortita's overall hall of casinos to about sixty. Is that right? Domestically? Correct. This book, it's an incredible book called by Sajit, your guy from the FT. We'll put it in the show notes. Sajit, Endap. Great name. When you own the operating business, you still have the landlord, and the landlord in this case is quite interesting. We should get into it. Will Krasne (19:36) Caesar's palace coo. And that's It used to be that Caesars own their real estate and they're running the casinos. The problem is these casinos are just massive working capital incinerators in a lot of cases. And so just part of the bankruptcy they took out a bunch of intellectual property. Then they also sold and leased back all the real estate to create a REIT. Yeah, create a new REIT, VC properties. Hiten Samtani (20:06) And BG, this name might be familiar to some, even if you're not in the entertainment business, because inexplicably they provided a giant mezzlone for one Beverly Hills project that we're obsessed with. Anyway, that's an aside. Will Krasne (20:17) So the billionaire boss now has a boss because before before you make those debt payments, you gotta make that ground rent payment, baby. Hiten Samtani (20:33) So Will, what if I told you insurance could become an asset instead of just an expense? Will Krasne (20:36) I'd say that you're trying to sell me something, but it's also something that I'm very interested in. Hiten Samtani (20:40) The big institutional firms in Fortune 500s use captive insurance. And now you can too. Real Property Captive has designed the first group captive structure for mid-market owners. Members own all the equity and all the profits in that captive. Will Krasne (20:52) So what you're telling me though is that my unused premiums no longer go to subsidize my insurance brokers, Lake House, and Carrier Overhead. Hiten Samtani (20:59) That's exactly right. You're not getting middleman into oblivion. Carriers issue policies and then provide reinsurance for lender compliance. The reserves stay in your account. Will Krasne (21:07) And after a few clean years I'm converting that excess spend into equity. I'm in. I like Hiten Samtani (21:11) Bingo. Listeners, check out the platform at rpcaptive.com. That's rpcaptive.com. And tell them the promote sent you. I think it's fair to say that no company in CRE is hated as much as the company we're gonna talk about. Will Krasne (21:31) Next. I think that's very true. Hiten Samtani (21:34) Co star group, this is the behemoth how would you describe Kostar? Will Krasne (21:40) The Salesforce of Care. The Salesforce may be the Salesforce of C are because everyone hates Salesforce too. Hiten Samtani (21:46) It's kind of an all your base or belong to us philosophy that Andy Florence, the founder and CEO of CoStar, uses. He started this company that has become oxygen for any CRE broker owner in the space, right? It's got all the lease comps. That's kind of where the the initial bread and butter was. Will Krasne (22:03) Police comps, sale comps, they've really antagonize their customer base because they still buy the seat. It'll check in, make sure that you can't use the same login. And it's always the best when it's someone who's not worked at the company like five years and their name is still a login. Hiten Samtani (22:18) More broadly, CoStar is hated because you're captive to it in a sense, right? A lot of broken Yeah, exactly. But it's also hated because of what many people describe as the law fair. Any competitor pops up, anyone has created any kind of really come hard at companies. Will Krasne (22:22) A necessary evil. Incredibly litigious. So here's a fun fact about Kostar. What is the first time that CoStar appeared in popular media? Hiten Samtani (22:42) Is it the SNL commercial? Will Krasne (22:44) It is the final episode of season one of the wire. What? Yes, I swear to God this is true. They ask McNulty how he found the office above the strip club. Hiten Samtani (22:56) Yes. Will Krasne (22:57) Jimmy says they said, How did you find that? And he says, Co star search. Hiten Samtani (23:02) That is incredible. I swear to God, yeah. It's two thousand one. I gotta go. Yeah. I gotta play that tape. So they're best known for their CRE data platform, but they've massively expanded out of that. So they now have the hotel data company STR. Will Krasne (23:15) Yeah. One of the first things you do when you're underwriting a hotel acquisition is you ask for the start report. Hiten Samtani (23:20) When you were a young buck in the Starwood hotel team, I'm guessing you were living and dying by that, right? Will Krasne (23:24) Right. And the middle tabs, because you want to see segmentation. Don't just look at the first one. Go to the middle. Go look at day of week. Go look at the weekends. Transient versus versus not versus corporate. That was a really smart acquisition, I would say. But what has been more controversial is their push into the residential home data space. They bought homes.com in 2021. They've invested billions of dollars. Some would say incinerated billions of dollars. And recently the stock has performed which it performed tremendously well for a long time. Hiten Samtani (23:51) Yeah, th but by the way, we should say, I mean, they went on a tear in the twenty tens. No matter what came at Coastar, stock kept popping. It was it was a Will Krasne (23:58) Great time. It has not been a great time recently and it has attracted the interest of Dan Loeb. He recently was on another podcast. Dan, come on our podcast. I know you invest in real estate out of your family office. And we should just read some of these letters because they're tremendous. And also the fact that Andy Florence fought back I'm tells you a lot about Andy Florence. Hiten Samtani (24:16) I mean Andy Florence is a he's Sicilian. Will Krasne (24:19) Here's what Dan Loeb had to say. The company's anemic performance can be ascribed entirely to the misallocation of billions of dollars into homes.com overseen by a feckless board of directors that has failed to protect shareholders from Mr. Florence's quixotic quest while rewarding him with exorbitant pay packages. Like an elementary school child who wins a prize even for finishing last, Mr. Florence's bonuses are perhaps the costliest participation award our firm has witnessed. You can see what he's trying to do, which is close the loop around. All of commercial real estate and residential real estate data. Hiten Samtani (24:52) But any significant real estate transaction he wants to have insight and leverage into. He famously bought Matterport, which is one of those companies that kind of the prop tech exits that actually worked out for them at least. I think he paid one point seven billion dollars for it. Will Krasne (25:07) Matterport was actually a good product, except for the fact when people take the pictures of the bathroom and they keep the camera where you can see in the vanity, you look like you've got the predator like in there. Don't do that. But just listening at the things they own, I mean, it's really kind of staggering. It's loopnet, apartments.com, homes.com, 10x, str Matterport. And they didn't really have new home construction. It was a real void for them. And so this fills that. It's a big price to pay. It's all cash. Really nice exit here from mid-ocean. Hiten Samtani (25:36) Eight hundred million. Nice for Zonda. Fourtieth acquisition, I believe. Will Krasne (25:40) Yeah, so they've really built this by acquisition. Hiten Samtani (25:42) How much did they pay? What seven north of seven billion dollars I think for all these put together. What is Coastar's market cap right now? What Their market cap is thirteen point one billion dollars. Will Krasne (25:57) okay, so that's not great. Hiten Samtani (25:58) Their stock is down sixty two percent over the past five years. Will Krasne (26:03) Right, so it should a this used to be a twenty six billion dollar company. Hiten Samtani (26:07) Zonda is considered to be one of the more definitive sources of new home construction data. They have great stuff from the builder side of things and they also have the demand side of things. Yeah. Will Krasne (26:19) So it's what's being built, where, forecast. So again, if you're a commercial real estate professional, the lines are being blurred, particularly with build to rent. yeah. Between commercial and residential. So you kind of have to have it. And if you have to have Coastar, it makes Coastar more valuable if it's bundled in ultimately with that. Or it makes it really valuable as a standalone. So you see what Andy Florence is doing, whether or not the market's gonna appreciate it, we shall see. And he's paying a lot of money for these things. Hiten Samtani (26:50) Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask, which was your least favorite? Will Krasne (27:01) First two, ugh, they were dreams. The third was a nightmare. Turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tab was really, really annoying. Maturity dates, extension options, rate caps, ugh. My spreadsheets were beautiful, but at what cost? Hiten Samtani (27:22) Sounds like you had good ROI, but your ROI BD, return on invested brain damage, not so good. So what changed? Will Krasne (27:28) I discovered Loan Boss. All my loans live on one screen. No more let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a post-it note on my monitor for that. A post-it note, a 10. Hiten Samtani (27:43) This day and age. Will Krasne (27:44) I'm not proud of it. But the one click DSCR testing, every lender adjustment, every unique requirement automated, ⁓ my god. Hiten Samtani (27:52) No more getting surprised by your own cap stack. Listeners, check them out at loneboss.com, that's loneboss.com, and tell them the promote sent you. Will Krasne (28:03) In your head In your head Zombie. Hiten Samtani (28:11) What's it? Will Krasne (28:11) In your head Hiten Samtani (28:16) This is bad. It's inevitable, but it's bad. Will Krasne (28:19) It's been a slow moving car crash for better part of a decade. Hiten Samtani (28:23) So Zom Living, which is a major multifamily developer, is prepping, as the promote understands it, to file for bankruptcy. Will Krasne (28:31) Jesus. Yeah. It's been a tough multi-family cycle for a lot of people. So is this from a bunch of bets that have gone poorly? Hiten Samtani (28:40) I think this is just the consequence of a legal massive defeat that they recently had in Arizona. So here's what happened, according to the judgment. Zom living in 2019 was approached by a developer called Gray. And Gray said, Hey, we have this 13 property, one and a half billion dollar pipeline of sites that we've assembled over a decade or so. Why don't you JV with us on these five sites? Zom's like, that sounds good. They had no presence at the time in Arizona. And so they started picking the brain of Gray about the market. And according to this court, battle. They were drilling them for information, et cetera. And when they were done extracting what they needed, they're like, all right, ciao. We're going to do this ourselves. And apparently this was such a devastating blow for Gray that it ceased to exist. It went out of business in 2020. Will Krasne (29:25) So that may seem just like well guys, like you should have had something signed. Well they did. That's the whole crux of this. That Zom had signed a non Circ agreement. Hiten Samtani (29:35) What is a non circuit agreement and how prevalent are they in real estate development deals? Will Krasne (29:39) In real estate development or finance, there's a lot of non-solicit non-circs. We won't go around you to do the deal. We're agreeing to do it with you. And these are really serious. I've never seen an NDA get prosecuted. You sign them on everything. You blindly sign them. But this is really serious because a lot of the real estate businesses with operating partner and capital. And if you're the operating partner, you bring the deals. And that's your whole value proposition, especially for gray here. I'm assuming that they were contributing them at some markup, considering it took 10. plus years to put together this site. Hiten Samtani (30:11) Yeah, they they put they put this side together. They approached a developer with better or broader base of equity sources and also national presence to go and build these things. These were let's call it a few thousand units of development. So pretty significant project. Will Krasne (30:25) It's really significant. And so for Gray, you need to make sure you're getting paid. And so generally in the joint event, you sign a non circ, which means you can't go around us to do these deals. Or if you do go around us, you have to pay us. And that's sort of agreed upon. But they tried to do, I guess not allegedly anymore, was just go around them and cut them out of the deal. Hiten Samtani (30:42) Maricopa County jury found that Zom had in fact squeezed them out of the JV and the judgment staggering. Three hundred and twenty three million dollars. There's not that many firms that can survive that. So when this hit, I'm like, is that the end? And it turns out it just might be. Will Krasne (30:58) It's important to differentiate between the end it's the end of Zom potentially. I don't think it's the end of this company. They are just gonna throw this thing into bankruptcy, be like, come collect a Daria start up again. Hiten Samtani (31:08) Yeah, restructuring is a beautiful thing. Will Krasne (31:10) Quotes from the head of Gray, who's Bruce Gray, kind of says it all. It's sort of basic playground stuff that I'm teaching my son. You can't enter a deal, then go around the very people that made it possible and offered you a seat at the table. Contracts matter. They did contracts matter. It's an important lesson for everybody in that you may think that these contracts you sign have no meaning, or it's all just suggestions. There's this saying that you can't do a good deal with a bad person. Some people, the best contract can't protect you, and other people you don't need a contract at all. They do matter, especially when it's these types of things. Certain things are really hard to prove, like getting a eviction for a non-monetary default or something like that from a commercial tenant, absent extenuating circumstances, generally pretty hard. This though, where the whole reason Gray exists, their whole business is finding these deals, putting them together, and then bringing in capital. And if you're trying to go around that and make that not work, that's huge. Hiten Samtani (32:05) I am still a little bit taken aback by the size of this judgment. Three hundred twenty three million dollars is a lot of money. Will Krasne (32:11) Their company's gone. They've had to front millions of dollars of legal expenses. It's not great. But think of it this way how much are five thousand brand new development units in the Sun Belt, what were they worth in twenty twenty two? Hiten Samtani (32:23) Zom is an interesting company in itself. You would think, what the hell is this name? So it was founded by a Dutch oil man called Juiced or Ust Zyderveld. ⁓ And Zom is an acronym for his name and whatever the Dutch word for oil is, which I'm not gonna undignify myself by saying here. It was l largely his own money and private Dutch capital. But today it's run by Greg West and Matt Adler is the CIO. Will Krasne (32:34) The Dutch. Hiten Samtani (32:49) And the investor base has shifted from private Dutch capital to US institutional capital. For example, AEW has been one of its development partners in the past. So they're pretty solid. They're a big shop. Will Krasne (32:59) And you talk about 323 million, let's call it 300 a unit. So assuming 2000 units, which I think was their Arizona pipeline by itself, I mean that's six hundred million dollars, roughly a value. I mean, what's the promote worth? What's the cash flow worth? It's worth a lot, plus all the legal fees, all the damage, the company not existing. I'm sure a bunch of that is contingent liability as well. So it's a huge number, but they could have made probably 50 million a promote, tack on all of the other things in there and the fact that they are gone. It's totally justified. And I for one am for contracts mattering. Hiten Samtani (33:31) Let's say they do file for bankruptcy. We believe it's imminent. Unwinding that portfolio is an interesting process in of itself. Will Krasne (33:38) This is the type of thing that great returns are made out of. And when you have a forced seller like this. And frankly, who do we know who's recently raised a Sunbelt development fund? It's going to be someone opportunistic who has the development capabilities, or alternatively, someone who is opportunistic and has an operating partner with a development capability. So wouldn't shock me to see somebody like a KKR come into this with an operating partner, like a Starwood Capital come in potentially with a development partner or just doing it internally. This is a big opportunity because these markets are have been institutional favorites for a long time and they've obviously faced quite a bit of challenge, mostly from supply recently. But as that supply pipeline slows down and you're delivering into a more favorable environment, that could be pretty valuable. So I would expect these to be very hotly contested. Hiten Samtani (34:28) The way that we found out about this imminent bankruptcy is I started hearing from people who were getting laid off at Zom and the reason for the termination was like, Hey, we're about to file for bankruptcy. So, you know, that's what's happening. These things get really messy and contracts matter. Will Krasne (34:43) Contracts do matter. They do indeed. Hiten Samtani (34:53) That's it for the Promote Podcast this week. Billionaire Casino Cowboys, Co-Star Running Riot on the real estate data landscape, and a story development firm heading for the Chapter 11 exits. Will Krasne (35:03) We'll be back next week with more CRE Insider Goodness and some incredibly wild takes, I think. I think we're getting a little bit looser this summer, and that's what it's all about. Hiten Samtani (35:11) Then prov is is the spice of life. Will Krasne (35:13) And also, thank you to our sponsors who make all this possible. Hiten Samtani (35:17) Bravo Capital, a leading Huddenbridge lender that you can find at BravoCapital.com. Will Krasne (35:21) Loan Boss, a best in class CRE debt management software that you can find at loanboss.com. Hiten Samtani (35:26) And Real Property Captive, the first group captive for mid-market owners. You can find them at rpcaptive.com. William, I normally say I'll see you next week, but hopefully I'll see you tomorrow. Will Krasne (35:35) I know, can't wait to see you hopefully in the bustling metropolis of New York City. Hiten Samtani (35:41) Screw the haters. Alright, thank you so much. Ciao. Will Krasne (35:43) Thank you.