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The Skyscraper That Broke America · The Promote Podcast

• Hiten Samtani (00:02) you When love presents itself at first sight, it's pretty apparent. Will Krasne (00:10) you can see the chemistry working. You can tell it's happening. Just like when someone spots a woman across the bar. Hiten Samtani (00:19) Now we might sound like the narrator for a softcore movie from the 80s, but in reality, that's investment sales broker Scott Latham describing Jared Kushner, smitten during the walkthrough of what would become America's most controversial skyscraper. Will Krasne (00:33) Jared Kushner does kinda look like the main character in Body Double. Hiten Samtani (00:36) That's doing Jared dirty, man Will Krasne (00:39) No, it's not. ⁓ Hiten Samtani (00:45) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani Will Krasne (00:50) and I'm Will Krasny. Hiten Samtani (00:53) Since it's Diwali, happy Diwali to my paisan We're bringing extra fireworks this week in the form of 666 Fifth Avenue, the Manhattan office tower that most perfectly captures both the financial and political zeitgeist of this country. Brookfield's just landed a big financing on the tower and we thought it was probably perfect time for its insane back. Will Krasne (00:56) Happy Diwali! story. We then get into the high wire act of bulk condo buyouts in Miami and what happens when someone doesn't quite nail their Philippe Petit impression. Hiten Samtani (01:21) Yeah, it gets pretty rough. And finally, we check in on Banco Santander, which is playing rough with delinquent sponsors on its New York City rent-stabilized book. Will Krasne (01:30) to listen to you say Santander all day. Hiten Samtani (01:34) A shout out to our sponsor Bullpen, they're a CRE dedicated recruitment shop and we're going to tell you more about their special offer for promote listeners in a bit. Will Krasne (01:42) And a reminder to check out the Promote Insider, our premium tier for paid subscribers with exclusive Insider content. Founding memberships are now live at $240 a year. That's $20 a month. That's less than a dollar a day. You could buy term life insurance for that. Hiten Samtani (01:55) We got some spicy stuff up already and much, much more to come. Go to thepromote.com slash upgrade to join the fun. All right, to 666. What a life it's lived, Will Krasne (02:09) man, is, this one's been. I know you have and it's one of the great building stories in New York and frankly in all commercial real estate. So I'm excited that we're going to be taking in on it. Hiten Samtani (02:11) You know, I've been wanting to do this one for a long I think if you had to pick one single skyscraper to capture both the financial and political kind of mood of the country, 666 would be my pick. It's got everything. mean, where do we begin? Record pricing, cocky scions buying from one another, insane appraisals, overheated CMBS market fluctuations, hardball pref, vendettas in the press, and there's a lot more there. Will Krasne (02:45) political jockeying, deals bought as not a favor, but also not a favor. ⁓ Leasing hits, huge refi, and ⁓ a great comeback story, but a great comeback story in the New York way where it's like everyone worked really hard to make like a 1-3. Hiten Samtani (02:55) A great comeback story. All right, so maybe our story should kick off in 2007 at Kushner companies. Yeah, what a time. mean, the markets were overheated. This is right after Stytown traded. This is go go days, Lehman, all kinds of crazy stuff happening in the broader financial markets. And there's a changing of the guard. What's happened is Charlie Kushner, the patriarch, the visionary really behind Kushner companies, he's just been released from prison. And the crime honestly is one of the most, I'm struggling here as a man of words, I'm struggling to find the words for what went down. Will Krasne (04:08) and trapped his brother-in-law and recorded the audio of it and sent that audio to his sister. Entrapped with a woman of the night. Hiten Samtani (04:14) entrapped with? Yes. So Charlie Kushner hired a prostitute to seduce his brother-in-law because he was mad at his sister because his sister had taken the side of his brother that he was feuding with, Mari. In revenge, he pulled off this really dark scheme and eventually went down for witness tampering. And a lot of love. More lies. Incredible upheaval. We'll put a New York magazine absolute banger of a piece in the show notes. Yeah. Dave Sherman's piece is amazing. Read it. Will Krasne (04:36) in this family. The Gabriel Sherman piece. Hiten Samtani (04:49) So Jared's now in charge at Kushner companies. He's a child who wants to make his mark on the skyline. New Jersey doesn't really cut it. Suburban portfolios don't really put you on the map, but a skyscraper on Fifth Avenue certainly can. Will Krasne (05:02) Absolutely. mean, think of it this way. How many people listening to this podcast have heard of Mitch Morgan? That guy's probably the second richest person in real estate in the United States. But yeah, like another striver from the outer boroughs who wanted to make his mark on Fifth Avenue, Jared came in in the overheated market of 2007 and tried to buy something before this. I forget exactly what building it was. Hiten Samtani (05:20) They're basically runners up on a couple of bits is what this is. Will Krasne (05:23) So when 666 came out, Tishman owned it. They said, we're not going to miss this one. Hiten Samtani (05:30) Tishman's Buyer had bought it with the Germans in 2000 for just north of 500 million, so roughly 400 a foot. There was whispers that it was coming back to market or that Tishman's Buyer would be willing to part with it at the right price. And that price was pretty damn high. Will Krasne (05:44) Yeah. Oh my gosh. So Jared tours it where the quote at the top of the podcast came out from, uh, from the sales burger was just fantastic. Hiten Samtani (05:54) I've been hearing that this was a pretty damn giddy tour. They showed up with 20 people and there was a lot of excitement from the Kushner camp, let's say, for this property. Will Krasne (06:01) Which I don't get, like the location is obviously fantastic, but it's a low ceiling column factory. You know, it was kind of was what it was. Hiten Samtani (06:10) So they decide that they're not going to get beat on this one. So they just go balls out. They sent Scott Latham, the Cushman and Wakefield broker who was running point on the process. They sent him a one page offer and it had a number on it. What was the number? Will Krasne (06:23) 1.8 billion. Hiten Samtani (06:26) That is massive, absolutely gargantuan sum for this property. think that's north of what, 1300 a foot, which is unreal. It's completely crazy. No one else is willing to pay that number. They buy this thing for $1.8 billion. Jared gets his headlines, Sion comes in, makes his mark, picks up this Fifth Avenue tower. And now what's the plan? Again, this was 2007. Will Krasne (06:33) time. absolutely nuts. Hiten Samtani (06:54) we'll maybe want to set the stage on what 2007 was. It's a little bit before our time, but we've studied that era because it was really quite an era. Will Krasne (07:03) There was unlimited financing for anything. Crazy high loan values. so they financed this with 50 million of equity and $1.75 billion in financing from UBS and Barclays. So 50 million is sort of like the real 2007 equity to buy a huge chunk of stuff because Harry Mackleod put up 50 million to buy Equity Office, his portfolio in mid-2010. Hiten Samtani (07:05) Whatever you wanted to do, you had money. I think Tishman Spire put up roughly 60 million bucks to buy freaking sty town, which is like five and a half billion dollars. Will Krasne (07:32) This a going rate of equity contribution. That's where I was going to go. So whenever you see on LinkedIn a syndicator or multifamily guru saying, appraisal was above the purchase price, so we created instant equity. Like that's because we're the best. Like fucking nonsense. And this is a great example of it because two months after the acquisition, the office hadn't signed a lease, probably still like hadn't totally switched over all the email accounts for the property management company. Hiten Samtani (07:34) Can we talk about the appraisal? Will Krasne (08:00) The office portion alone was valued at $2 billion. Hiten Samtani (08:03) is on Fifth Avenue, so the retail presumably is super valuable as well. And so remove the retail, take it out of the equation, we're talking about just the office, is now valued at more than what the customers paid for the entire building. And what has changed except the passage of time? Nothing. Will Krasne (08:20) They hadn't even been the passenger of time. It was two months. Hiten Samtani (08:23) Exactly. How do you get an appraisal like this? What the hell is going on? Will Krasne (08:27) When the ducks are quacking, you gotta feed them. Everyone's incentivized to have these deals closed. Everyone eats. And that includes the appraisers. Hiten Samtani (08:34) So they securitized the senior, I think it was like a $1.2 billion senior loan that was put through via CNBS. And then they had 500 million or so in mezzanine financing. To pay off the mezz, Kushner goes and does something pretty intriguing at the time. Will Krasne (08:48) Yeah, they sold a controlling stake in that very valuable retail to Carlisle and then the Chera family's Crown acquisitions. Hiten Samtani (08:54) Just for anyone who's as familiar with New York, Chairs are like the Syrian Jewish retail royalty. So the Sutton's, the Sitz, the Nakashas, the Chairs, the Carries, the Gindis, Sephardic Jewish families that run New York retail, high street retail. So they came in, this is their business, and they paid I think about 525 million that summer to buy the retail. Will Krasne (09:14) And as we move forward, let's think about what happens if they had been able to execute that literally three minutes before the world explodes. Hiten Samtani (09:21) You could argue there's no affinity partners, there's no... Will Krasne (09:24) No, there's definitely no affinity partners. And that family is white. Hiten Samtani (09:27) Right. So they have this building, they've sold off one of the most valuable chunks of it, the retail. And then we had 2009, 2010, the market turns, you're absolutely hemorrhaging debt. Will Krasne (09:38) I think the math was that they were losing three and half million dollars a month. And so again, a lot of this was funded in a lender reserve. When you get this appraisal and you get this high leverage loan, everyone's not totally insane. They're like, you're not going to be able to debt service, but we got to reserve a bunch of money to pay ourselves. So it's basically just crunching your cash or grinding your cash. They had at one point $10 million left in that account that was supposed to like... fund all of their like renovations, releasing and all the negative cash flow from that. And they were just not doing that and not getting cash. So this was very, very dire straits. Hiten Samtani (10:13) And this is their, again, their flagship property. They've basically banked their reputation on this building. I don't know if they had any PGs or anything, but this is the kind of deal that if it goes wrong can really, really cause a lot of damage in the empire overall. Will Krasne (10:24) 100 % if you get foreclosed on a building like this and at this point Kushner wasn't what they are now Kushner now is an institutional powerhouse Yeah, private equity shop, but back then they weren't like this was a family It's really hard to get dead if you just fork you got foreclosed on a 1.8 billion dollar acquisition. So there Hiten Samtani (10:39) the midst of trying to figure this out and then one of my favorite characters in all of New York real estate comes in and makes them a deal. Stevie Roth of Ornado Realty Trust. What happened here? What did he offer? mean the specifics of this are so good. Will Krasne (10:46) yeah. What does Voldemort do to like split his soul into Horcruxes and they're like, you'll never get like put back together. That's kind of the money that Steve was given these guys. It was what 11 % interest on the money they actually invested as paraff and then a 3 % return on like any money that they could potentially invest in the future. Hiten Samtani (11:13) like a take it or leave it son and I can even imagine Steve Roth telling Jared exactly that. Take it or leave it son. Like this is what I've got. Will Krasne (11:20) That's exactly right. It's like there's no negotiation. We're not countering this. This is the thing. Hiten Samtani (11:24) And so Jared had no choice. He had to take it. In the midst of all this restructuring, there was another character that we've brought up before, Richard Mack of Area Property Partners at the time. Will Krasne (11:33) Another one of the leading lights of New York real estate. He was trying to elo in on buying a piece of the debt and potentially foreclosing on this thing, because again, a lot of these folks for NATO area starboard capital. This was a valuable property. It wasn't worth one point eight billion. So if you could get in at a last dollar basis, that made sense. Like, hey, maybe, you know, we'll get together. Have a few laughs. So everyone's circling this thing because everyone knows it's hemorrhaging money. Everyone knows that they are bleeding. Hiten Samtani (12:00) You can imagine the TRD and commercial observer visuals at the time for this building. You got the tower and then you've got a bunch of sharks and Steve Roth is one Will Krasne (12:08) Well, it wouldn't be the commercial observer because it was owned by Jared Kushner. Hiten Samtani (12:11) Very true, very true. Good point. Will Krasne (12:17) So we brought up Richard Mack because there's a great aside here, which is he was being so sharp elbowed in the negotiations and trying to buy part of this debt that Jared Kushner went to another part of the empire, the Observer. Hiten Samtani (12:30) One thing we've learned about the Kushner family over the years is that they do not forget slides. So in this case, according to an account in Vanity Fair, Jared Kushner tried to run a hit piece in his publication, Commercial Observer, on Richard Mack. And it was known colloquially in the newsroom as the Big Dick Mack story. Will Krasne (12:34) Definitely not. And the best part about this is so again, according to published reports, he offered a tip and said it would check out on Richard Mack. And it did not check out. the observer staff, yeah, reported it out and did not check it Hiten Samtani (13:02) didn't take and ⁓ they never ended up publishing the story but the news about the impending story or the attempted story certainly came out. Will Krasne (13:10) A great example of the Streisand Hiten Samtani (13:15) Steve Roth comes in in 2011 and the following year he buys the retail, which is seen as the most valuable part of the building at this point, from Crown and Carlisle for about $700 million. So they did very well on this transaction. Will Krasne (13:27) Yeah, and someone made a lot of money. At the time, like Fifth Avenue, high street retail was seen as sort of like as gold plated, NASA classes you could have in New York. Retail runs were going to the moon. Like 2012 was still early, but they peaked to what, 2015, 16, 17, something like that. this was seen as a great investment on Steve's part and Crown and Carlisle did well. And I think he did really well when it ended up getting bought out. Hiten Samtani (13:48) I think he did very well as well. So this is all happening. Jared Kushner is in the middle of this thing. He's trying to rescue this building. Even though they did the recap, this wasn't the end of the pain, right? This building still couldn't make it work for a long time. Will Krasne (13:59) Yeah, it's still losing money. Hiten Samtani (14:01) I'll show you that in a second. Wait! I'm not even saying- Will Krasne (14:04) by the way. that ⁓ Hiten Samtani (14:10) kind of thinking you need for this country. Summer of 2015, Donald Trump descends a golden elevator at Trump Tower and kicks off what becomes probably the most improbable political win in the modern era. November 2016, he wins the election, he beats Hillary Clinton, and suddenly Jared has options. Will Krasne (14:28) All of a sudden instead of just having a hemorrhaging building on 5th Ave, he has a hemorrhaging building on 5th Ave and he's the president's son-in-law. Hiten Samtani (14:34) He's the president's son-in-law and he's seen as a of a quiet force behind Trump's rise. So it's a pretty extraordinary situation to be in. And what's amazing is the timing right after that, right? So right after the election, has seen dining with a certain Chinese business person. Will Krasne (14:51) Woo, shall we? Hiten Samtani (14:53) Yeah, so Anbang Chairman Wu Xiaoyi. Now Anbang is a very interesting company. It's a giant insurance company out of China. It's just like a black box conglomerate of the best way to think of Will Krasne (15:03) We've talked about them before in relation to the wall of Historia and things like that. Hiten Samtani (15:07) The Chinese came to refer to these companies as gray rhinos, which are these like fast growing conglomerates that were just kind of gobbling up everything in sight. And at some point the Chinese government said, all right, party's over. We'll get to that in a second. But at this point, the party was very much still on. so Anbang comes in, they buy the Waldorf Astoria for nearly $2 billion from Blackstone. They buy strategic hotels and resorts for like what, $5 billion plus? Crazy spending spree. And then they come in and they look at this tower called 666 Fifth Avenue. Now, Will Krasne (15:30) Yep. Hiten Samtani (15:36) Right around the time that President Trump is supposed to have a sit down with Xi Jinping of China, there's a talk of a deal in the works between Anbang and Kushner companies for 6665. Will Krasne (15:48) Right. So what it's they were going to put in 400 million at a four billion dollar valuation. Hiten Samtani (15:52) They were gonna redevelop this thing as luxury condos, for retail, et cetera. And Charlie Kushner estimated that this project all said and done would be worth north of $7 billion. I remember at the time I was like, this doesn't math with anything I know about the market. So I started calling around and start calling everyone I know. And they say, yeah, you would have to basically underwrite the condos at on an average sales price of 9,000 or $10,000 a square foot. This was not a realistic number back then. There were maybe a couple of condos in the history of Manhattan that had traded for those per foot prices. Will Krasne (16:26) And when you say condos, mean individual units, not buildings. Hiten Samtani (16:29) Yeah, so these were fantastical numbers. Will Krasne (16:33) Wu has this amazing quote, if you choose to stay in rural villages, you can only meet common village girls. Hiten Samtani (16:38) Yet if you come to Paris, you'll have the chance to lay your eyes on the Mona Lisa. This is the stuff. Will Krasne (16:43) Shocking that a guy who said that and ran a financial institution ended up in prison. Hiten Samtani (16:47) He did. So at some point the Chinese came for him. I think he was sentenced to 18 years in prison and we have no idea where he is now. poorly. Won't see him no more. So anyway, Anbang's out of the picture at this point. The next depocketed source that the Kushners look at is the Qatari's. Will Krasne (17:01) Kushner starts working these guys to do sort of the same type of plan. And in the middle of this, Charlie gives some pretty good interviews. Hiten Samtani (17:08) my God, it's such an incredible interview. what happened was Charlie met with the Qatari finance minister. Apparently they discussed this tower. Generally would be considered a massive conflict of interest. But again, the political landscape is shifting very, very quickly. What was unfathomable maybe five years ago, not so much anymore. During all this sometime in 2018, my old shop, The Real Deal, does an interview with Charlie Kushner. And man, you want to give me a sense of how you felt when you read that interview, because I think it's pretty special. Will Krasne (17:35) the facade you would have in polite society is just gone. And the id is there. And the id is the thing that makes men like Charlie Kushner great. It's what allows them to build huge businesses and take the risks you have to take and deal with the stress you have to handle to build that. But there's always sort of the thing that you have to hide it. Hiten Samtani (17:53) I think in Mario Puzo's, this is in the book, not in the movie. The guy's name was Jack Waltz, the director. The Godfather asked Tom Hagen, he's trying to gauge how far this guy will go. And he asked Tom Hagen, is he Sicilian? Like, he go to the ends of the earth to fight this war? And I think Charlie Kushner is Sicilian. So the real deal reporters, I remember this because I was editing this story, it was an incredible time. They walk into his office and he goes straight fire and brimstone. He says the following. Will Krasne (18:12) honorarily. Hiten Samtani (18:22) Are you guys going to be assholes today? Are you going to give us a fair shake? Because you've been assholes in the past. Do you want me to throw you out of here right now? Cause I will. Then you can write whatever the fuck you want about me. like absolutely amazing. So at this time they're negotiating with the Qataris as well to invest in the tower that didn't take either. So kind of running out of options here and then come your boys. Will Krasne (18:34) Yes. Ugh! Brookfield. So it's not a direct deal, but QIA is a big investor in Brookfield. Hiten Samtani (18:55) QIA being the pension arm for the Qataris. Will Krasne (18:57) Yes, exactly. And it's one of these deals which they had them over the coals like there weren't a lot of options for the Kushner's here. They also now had the same thing Macklew had when he gave back his portfolio. They had a huge tax problem. Yeah. Because they fully depreciated this thing. Whatever price they get, they're going to owe a gargantuan sum in capital gains tax, even though they don't get a ton of cash back. the way to structure around that is a ground lease. Really nice to find a friendly buyer who will structure a ground lease. pay all of the 100-year rent or 99-year rent upfront to avoid that pesky capital gains tax. Hiten Samtani (19:31) Pretty good situation for the cushioners. Very, very, very close call, but seems like they're good for now. Will Krasne (19:38) And this is also one of situations, like I knew some folks at Brookfield, we were working with the Steel and it's one of those things where you can put a big check into a building on Fifth Avenue and it's gonna take a long time to redevelop, so like no one ever kind of knows if it's good or not, which kind of works. Hiten Samtani (19:51) They can just hide this behind a bunch of other deals for a bit until things work out or don't. And so they announce of what a $400 million capex project. Will Krasne (20:01) Yeah, I'd be stunned if it wasn't significantly more than that, but they rebranded the building and they've actually had really good leasing success. They've gotten Citadel, Macquarie, Viking Global. They're getting rents north of 130 a foot. Quite a good execution by the Brookfield guys. And the reason we're talking about this is because it was back in the news because it got a new refi. Hiten Samtani (20:22) So they got a $1.3 billion dollar refi, so loan basis of just around $1,000 a foot. I think it's gonna be what, 1.2 billion odd in CNBS and then about 90 million in Mez. And the building was appraised during the whole loan process at about $2 billion. Will Krasne (20:37) What I think is funny is that the appraisal at 2 billion, we've just come completely full circle. Because it did all this work to appraise what it appraised for in 2007. Hiten Samtani (20:45) We cannot stress enough how scrutinized this tower was during the whole Trump won situation. The first couple of years of his administration, 666, the Kushner's Fifth Avenue, every major newspaper in America had some angle in on 666 because it seemed to be an emblem of like shady deals happening. All the elements of it came through. There was an EB-5 component. There was an angle about, is this like political pressure to get this deal done? So much of what we now in this administration kind of is pretty standard. One thing I should say from the TRD interview I mentioned that Charlie Kushner, because the Anbang deal had collapsed by this time, over a lot of this pressure that I'm talking about, ⁓ Charlie described ethics watchdogs as jerks who couldn't get a real job. Will Krasne (21:29) tremendous. Hiten Samtani (21:31) So what are your takeaways? Will Krasne (21:33) My big takeaway really is that you really have to know what game you're playing because if you're buying smaller deals, whatever you're doing in real estate, if you are buying a deal this size, you are making so many different macroeconomic bets without even really realizing it. So we talked about how the big private equity firms are just really trying to get into the way our capital is flowing. This is an example of this. An asset this size, not just the size, but the address. The prestige of it, yeah. Hiten Samtani (21:58) stage of it, I think, Will Krasne (22:01) This isn't a real estate asset. It is a global trading sardine. Hiten Samtani (22:05) the list of suitors typically for buildings like this, the Chrysler, et cetera. You'll see Abu Dhabi come in, Qatar, like the big pension funds, the big sovereign wealth funds. It means something beyond the brick. Will Krasne (22:16) Yeah, exactly. Hiten Samtani (22:17) What's interesting here to me is that by any normal metric, if this was a normal family in the business, I don't know if this deal would have got rescued the way it did, but this was not a normal family in the business and an improbable turn of events in the White House completely changed the dynamic, warped the dynamic on this. When you play Uno or Monopoly, you have to get out of jail free card or the wild draw four. This felt like that. mean, this is one of those things you could never predict and it completely changed the leverage and negotiating power that the family had. Brookfield's going to make a decent amount of money on this. Kushner's got away ⁓ with it. Just one of those things that happens. Will Krasne (22:53) Yeah, it's Chinatown, Hiten Samtani (22:57) Okay, I take it. Will Krasne (22:58) Chinatown. So we talk a lot in the show about how CRE is such a specific weird world unto itself. So when you're talent hunting in the space, you have to partner with a recruiter who lives and breathes it. Hiten Samtani (23:14) Like you really need to know commercial real estate, you can't just be a rando. Will Krasne (23:17) No, definitely not. That's where Bullpen comes in. Their talent shops solely dedicated to the commercial real estate industry. They can fill both fractional and full time positions and they can hook you up from all levels from analyst to the C-suite. Hiten Samtani (23:29) Check them out at bullpenre.com to get started. That's bullpenre.com. Exclusive for promote listeners, Bullpen is offering $1,000 off your first search when you mentioned that we sent you. That's the promote. So let them know bullpenre.com. Pretty, pretty good. Will Krasne (23:42) Pretty good deal. Pretty good. So, seems like a pretty good plan. You have an old building, great location right on the water. Only problem is you got a bunch of old people who live there, but that's okay. We'll just buy all their units and then terminate the condo and redevelop it. Hiten Samtani (24:02) What developers have been doing is pretty interesting strategy. They've been going in, getting financing to do these bulk buyouts of these older condo units, and then hoping you can go build a shiny new tower and sell it at 20, 25 prices. Will Krasne (24:15) So Related's doing it at a bunch of different projects. Hiten Samtani (24:19) Each group, yeah, a bunch of the biggest names in that market are doing this. I've dislocated the market from what happened at Surfside that there's interest to sell these condos and maybe move on with their life. Will Krasne (24:23) This is a hot trade right now. The reason why Surfside collapsed is because it was old, there were structural problems, and those things are all age-related. And I think one thing we don't really reckon with a lot is that our built environment, especially in markets that have more climate issues, like Florida, Vegas, Southern California, what have you, we don't reckon exactly with how long these buildings are going to last. And the post-war building boom, we're kind of coming up on the first real round of buildings hitting obsolescence and then being dangerous. And so if you bought a condo in 1984 for $200,000 and the building needs the entire foundation to be retrofitted and every unit's going have to pay $200,000. Hiten Samtani (25:09) the assessments just creep up on you and suddenly this doesn't make any sense anymore. Will Krasne (25:13) It's not really any different than a New York co-op building on a ground lease. Hiten Samtani (25:16) happening with I think a Ruby-Shrone joint right now. Will Krasne (25:19) They bought it. Ruby short, David Warner bought the ground with like seven years of term. Yeah, you can buy a two bedroom and then one of those buildings were like three hundred thousand dollars because they're either going to jack the ground run up or just like take the building back. Right. And it's not dissimilar here. There's a little bit more mechanics involved because depending on the association, you have to get control of the H.O.A. Then you have to have enough votes to be able to terminate the H.O.A. and sell and basically redevelop the building. Hiten Samtani (25:23) And they're like... That's exactly what's happening here. So we're talking about a building on Bayshore Drive and there was a company called Two Roads Development. And what they did is they went and picked up a bunch of money from OzK and Fisher Brothers. yeah. So they picked up a senior from OzK and Mez from Fisher Brothers. And the plan was to go buy out all these condos and develop an addition residences on the site. Will Krasne (26:07) And so essentially what these people would do is you buy enough units to get control of the HOA and then you change the laws in the HOA to drop the number of percentage of votes needed to terminate Hiten Samtani (26:17) You've bought enough units that you now control the associate. Reminds me bizarrely of Bloomberg's third term. Will Krasne (26:20) yeah, so then you change the laws So anyway, Two Roads bought this site, beautiful, like great location, right on the wall. Hiten Samtani (26:31) They paid about 150 million dollars for it by the way to do the bulk purchase Will Krasne (26:34) Yeah, and did just this they made an amendment to the condo declaration to lower the requirement for condo termination to 80 % of the owners versus 100 % because they already owned more than 80 % and a couple of the holdout owners sued them in 2023 and they just got a pretty good ruling Hiten Samtani (26:49) Yeah, so basically they had won a lower court judgment and said, Hey, you couldn't actually do this. You don't have the right to change the termination thresholds. So the developers two roads went to the Supreme court, the Florida Supreme court and the Florida Supreme court declined to hear the case. So now they're out of luck. That's it. That's the end of the road for them. Unless they can convince these condo holders by again, maybe paying them a hefty sum to get out. They don't really have any legal recourse anymore. And know what that reminds me of is the 15 Central Park West holdout guy where the rent stabilized owners, I believe at the end, the last couple of holdouts got, think, sums of like $15 million to leave. Will Krasne (27:21) yeah. It was like the most expensive one bedroom apartment purchase in the history of Manhattan. Hiten Samtani (27:33) ridiculous aside but David Rosenhoek who was the tenant lawyer who got those things had an amazing quote he said, if you fuck with me, I'll fuck with you for sport. We should say that the Zeckendorf's probably don't even care about that because they mean so much. Will Krasne (27:48) Yeah, now this though, these holders, have tons of leverage. There's nothing else for two roads to do. Hiten Samtani (27:52) is pretty sensitive stuff because as you can imagine, the interest is piling up, right? So OZK wants their money, Fisher Brothers wants their goods. Will Krasne (28:00) Actually, Brothers may just want the asset. Hiten Samtani (28:02) Maybe. So it's like a lot of interest is piling up. They've already launched sales. I think their first phase is live on this project. And generally in Miami, you kind of use the pre-sale. Will Krasne (28:12) Florida has a different law than New York where you can use deposits to help fund construction itself on condos. One thing I want to reiterate though is just that, at end of the day, people are fucking with people's homes. Right or wrong, you have your right to your own property. If someone comes in, just because the pro forma says that they need these things to work doesn't mean that the people are going to want to leave. Hiten Samtani (28:35) We see this from day to day examples all across our cities to really high profile examples like Stuy Town in New York, right? Where the rent stabilized units had to turn over at such an aggressive rate to make the numbers work on that record purchase. It didn't happen. And so they walked away. Will Krasne (28:49) It's a game of people. It's not just spreadsheets. I don't know what two roads did to talk to these holdouts, but ⁓ clearly didn't work. And now they might be up a creek without a paddle. Hiten Samtani (28:59) And ⁓ still some pretty salty feelings left among the holdouts, even the ones that scored a pretty substantial victory. One of the more bizarre quotes I've ever read in all my years covering this industry, trigger warning. We're going to read it, but it's pretty bizarre. So please be advised. Will Krasne (29:16) Yeah, and ⁓ boy. So one of the holdouts delivered a quote after this decision was made. This guy named Robert Murphy. I'm happy in the way a rape victim might feel happy when the jury comes back with a guilty verdict. There's a measure of satisfaction that justice has been done, but you still live with the rape. Hiten Samtani (29:35) I don't really have much to add after that. Should we end it there? Will Krasne (29:39) Yeah, ⁓ Robert? It's just your condo, ⁓ Hiten Samtani (29:54) We want to tell you about the Promote Insider that is our new premium tier that's now live and packed with exclusive content. Will Krasne (29:59) Think behind the deals, spotlights on the money behind the money and bonus episodes of this year podcast. Hiten Samtani (30:05) Founding memberships start at $240 annually. That's 20 bucks a month. And you can go to promote.com slash upgrade to get started. That's the promote.com slash upgrade. And listen, if you're curious about the bizarro industry of residential mortgage. Bizarro. The Promote Sister publication, The Mortgage Scoop, is doing some really, really cool stuff. I learned about this guy, Shant. Did you hear about Shant? Well. Will Krasne (30:28) I ain't no shot. Hiten Samtani (30:29) He's like Madonna just needs a first name. It's amazing. He's close to 40,000 deals. It's madness. Imagine that level of productivity is crazy. Anyway, it's a super intriguing market. has its whole cast of characters, very similar to the promote in that sense. And if you want to check it out and you're interested in that world, check out the morguescoop.com. All right, we've talked quite a bit in the promote about the signature loan book, right? So there was the office and retail loan book, and then there was a rent regulated multifamily loan book. We've talked on this podcast quite a bit about how the rent regulated industry is kind of in shambles, right? For a variety of reasons. What is happening now is that lenders are playing hardball in this market. The FDIC took over Signature Bank, collapsed Regional Bank, massive, massive player in New York real estate. They took it over and then they started selling out these loans to other banks and private investors. So Banco Santander, which you'd like to hear me say for whatever reason, Santander came in, paid 1.1 billion for a 20 % stake in this loan book. And we were curious to see how they would kind of play this, right? We've talked a lot about Rialto and kind of going scorched earth on, on borrows and stuff, but I was really curious to see how these banks would. Will Krasne (31:31) There you go again. Hiten Samtani (31:50) navigate the distress that's seeping through the market. Will Krasne (31:53) These guys have been pretty sharp elbowed themselves. They especially coming really hard after a couple of big shops L who we talked about recently sold a piece of themselves to 6th Street L defaulted on a building and tried to give the keys back and Santander just said no Hiten Samtani (31:59) Yeah, like really big sharks. And L sued, this is really hilarious. So L sued them basically for what they didn't do, which is they didn't want to accept a deed in lieu. And L said, it's an amazing legal argument. I'll drop something in the show notes, but they basically said, it's kind of understood that if we default, this is America, you lender, you must take it back. And sometimes there's like, no, it's not the contract is the contract. You can assume whatever you want, but we're not going to necessarily just take this back. And then LNM was also a little bit butthurt about some references to recourse and whatnot and bad boy guarantees, et cetera. Santander said, we're not even making any specific claims about recourse right now. We're just saying that we have pathways to recourse. That's so funny. Will Krasne (32:54) And now they're coming hard after A &E, which is Ariaga and Eisenberg. And for those who don't remember, it's one of the largest rent-stabilized owners in New York. One of the partners, the A, is John Ariaga's son, John Ariaga, one of the fathers of Silicon Valley, Mark Andreessen's father-in-law, all sorts of things. So they've bought 10,000-plus, not more rent-stabilized ⁓ Hiten Samtani (33:14) they're bigger than that, but we'll see for how long. So, Annie had a couple of signature loans out there. One was on 58th Street and Santander is coming after them. They filed a pre-foreclosure action. And I thought for the promote listeners, a little nugget that would be interesting. Guess who's running point on that for Santander? Will Krasne (33:31) Chris Center. Hiten Samtani (33:33) Chris Seder name wouldn't mean anything to most people, but he has some pedigree. He's from fortress. So he's running point for Santander on this. The legal argument that Santander is making is that A &E is mismanaging the property. So in the lawsuits, they've included exhibits about HPT violations, etc. The picture they're trying to paint is like negligent landlord and we need a receiver for this property. That's the whole play. Will Krasne (33:38) is from one of the other sharp elbow guys, Fortress. here. Which is kind of interesting considering that this is their entire business and they're incredibly well capitalized. It's not as if this is a mom and pop operator who's leasing units out of a Gmail account. Hiten Samtani (34:09) Santander is pursuing a very similar strategy, again run by Chris Seder at a big Queens portfolio. Now this is about 1300 plus units in Queens and Q Gardens and A &E claims that they were blindsided by this. They're like, we've been in discussions with the lender. We've offered to kick in, not only kick in more equity in one case, but also pay the loan off at par. However, Santander has been bringing up our, ⁓ there's a really funny term in here, involuntary rate. Will Krasne (34:24) More equity. The higher interest rate applies to a loan that's in default or otherwise non-compliant. Hiten Samtani (34:41) Interest on the entire unpaid principal sum and any other amounts due under the loan documents shall accrue at the involuntary rate. This rate, by the way, Will, is specified in loan docs at 24%. Will Krasne (34:52) And this isn't just about the loan proceeds. They have a couple million dollars in like water sewer bills. They've got electric bills, a bunch of other property taxes that have been made. So all of that is occurring at the aforementioned involuntary rate. Hiten Samtani (35:06) The reason we think this is interesting, because we've talked a lot about private credit playing hardball, like if Maverick buys a note or Rialto buys a note, you kind of expect fireworks again for everyone. Happy Diwali. kind of expect fireworks on this kind of thing, right? But when a bank goes and buys a book like Santander did with with signature, you might think that they would play it another way. But I guess maybe the problem is like, there's no end in sight to this distress and rent stabilized. Will Krasne (35:34) We don't see the light at the end of the tunnel. And these are some of the biggest guys in this industry doing it. And if they're facing troubles like this and banks are treating them like this, if you are not this size, you should be a little bit afraid. Hiten Samtani (35:46) When Santander served A &E a notice of default and demanded an immediate payoff of the loan plus the default interest, it was Valentine's Day. Will Krasne (35:54) Valentine's Day Masker. Hiten Samtani (36:01) That's it for the Promote Podcast this week. The most controversial office tower in America is now just another boring old office tower. But boy, what a journey it was to get there. Bulk condo buyouts are the most fun a developer can have without terminating the condo docs. And Banco Santander is putting a little bit of fuego on some of New York's biggest multifamily players. We'll be back next week with more CRE Insider goodness. A shout out again to our sponsor Bullpen. Promote listeners get $1,000 off their first search. when you hit up bullpenre.com and mention that the promote sent you. Will Krasne (36:34) As always, reach us at podcast at thepromote.com for feedback on this pod or at partnerships at thepromote.com if you'd like to advertise. We love to hear from you. The audience engagement here is one of the things that makes it so fun. So please reach out. Hiten Samtani (36:47) It's so fun. It's such a good time. I really, really enjoy this podcast, man. I really do, sincerely. And check out the Promote Insider at thepromote.com slash upgrade. That's our premium tier that starts at 20 bucks a month. Will Krasne (36:58) And make sure, most importantly, that you've got the support of 100 % of the votes at your next condo conversion. Hiten Samtani (37:04) Absolutely, you especially. You've been through enough. I'll see you next week, dude. Thanks so much. Happy Diwali. Happy Diwali. Ciao.