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Pinnacle's Bankruptcy Summit & Life Sci's Midlife Crisis · The Promote Podcast

• Hiten Samtani (00:05) Coffees for closers. Will Krasne (00:07) then it's a good thing they mostly serve matcha at Soho House. And you see this watch? It's worth more than your car. Hiten Samtani (00:21) Welcome back to the Promote Podcast, your insider guides, the money and mania of the CRE markets. I'm Hiten Samtani Will Krasne (00:27) and I'm Will Krasne. Hiten Samtani (00:30) A shout out to our sponsors for this episode, Bravo Capital, which is one of the market's leading HUD and bridge lenders. Will Krasne (00:35) and LoanBoss, a best-in-class CRE debt management software. So borrow from Bravo and manage it with LoanBoss. Hiten Samtani (00:42) Today we're talking a glitch in the Morse code. Tyler Morse's MCR has failed to come up with the cash to consummate the take-private of Soho House, setting off probably a mad scramble with Ron Burkle. There's more bad chemistry in the life sciences space with the venerable Beacon Capital Partners battling with its operating partner and lenders all over starting to lose patience. And finally, we dive into the most closely watched bankruptcy auction in Sierra at the moment, the Pinnacle Portfolio in New York City. Will Krasne (00:46) boy, are we ever. Hiten Samtani (01:14) Let's get right to it. Will Krasne (01:15) As Shina Shea would say in Vanderpump Rules, it's all happening. Hiten Samtani (01:19) It is all happening. So your boy Tyler, this is pretty seismic. Not coming up with the cash to close is quite a bit of an issue. Will Krasne (01:26) Yeah, especially if you sign a legally binding equity commitment letter. What's crazy about this, at first blush, this is a potentially extinction level event for MCR because they might get sued for specific performance. Damages in some of these cases are generally five to 7 % of the equity value. You can be forced to close. It's the same thing that happened with Twitter. You legally had to close once you signed the document. However, Hiten Samtani (01:30) Right. Elon, yeah, correct. Will Krasne (01:54) There's a little bit of fancy feet here because again, like Ron Burkle is selling to Ron Burkle. It's a controlled. Hiten Samtani (02:00) Ron Burkle and Goldman Sachs Asset Management, which are two of the big shareholders of Soho House currently, are rolling their stakes into this take private vehicle. Will Krasne (02:09) So anyway, the damages in the merger agreement are capped at 10 million. So... What? It's crazy. Hiten Samtani (02:14) Was an MCR supposed to put up about 200 million? Will Krasne (02:17) 200 million. Yeah. So like seven to eight percent of the purchase price. Hiten Samtani (02:21) We should back up a little bit. This is a take private of Soho House at a roughly $2.7 billion valuation, including debt. And the major players were MCR, Taylor Morse, Ron Burkle of UKPIT companies and Goldman Sachs Asset Management. Everybody ready? Ashton Kutcher, forgot him. And our boys from Apollo, obviously, who were coming in with roughly $800 million in debt and equity commitments. This kind of came up very 11th hour. think January 5th is when he told the investor group that, yeah, it's not going to happen. Will Krasne (02:38) and Ashton Kutcher every- It's so bizarre. Why sign the equity commitment letter? Or why did anyone even care if they signed it if damages are capped at 10 million? It doesn't matter. It's legally binding up to 10 million. Like, who cares? Like, Tyler can cover that personally. He can sell his part of Swansea and fund it that way. So it's so bizarre. And then the funny thing is that the whole equity group, think, is liable for the damages. So is Ron Burkle paying $7 million to Ron Burkle? Hiten Samtani (03:24) The only one here. Crazy! Will Krasne (03:25) Yeah. This is not like tying up a 70s vintage multi-deal in Houston and going to like write the PPM, send it out wide. This is a public company. Hiten Samtani (03:36) Stock plummeted right after this was disclosed in Soho House's filings. Will Krasne (03:39) The whole thing is just so embarrassing. The board of directors for Soho House should just get punted into the sun. So taking a step back, MCR, I think the third largest select service hotel operator in the country. Hiten Samtani (03:52) Tyler Morris built his brand and built MCR on select service and we've talked about that. Unglamorous, but in your very polished words, shitting cash machines. Yeah. And then more recently he's been lured by the exotics, right? The TWA Hotel, So House, et cetera. These are glamorous. They're more fun to talk about on panels and such, but they're harder to pencil. They're trickier as investments. Will Krasne (04:14) It's a worse business. Sometimes you get deluded by saying, it's better real estate, so it should trade tighter. But the cash flow scheme is just worse. It's so funny. If you read MCR's Fun 4 deck, which has made the rounds because they've been in the market for like three years, that's the ultimate guarantor that couldn't come up with the money. They say that we focus on select service. That's our bread and butter. The rooms business is the only good business in the hotel business. It's funny because Tyler had the Barry's guy job as we talked about. Hiten Samtani (04:39) to that in the show notes. It's an interesting position to be in. Will Krasne (04:42) Barry would say like there used to be two good businesses being in the hotel business. It was the rooms and then the long distance phone calls. Obviously like that one went away. Their materials are all about how we stay away from F &B. It's low margin. Yet they own three enormous New York Union hotels. They have the TWA hotel, which I think also Union. Hiten Samtani (05:06) Well, obviously it's by the airport. Will Krasne (05:08) to get around. Those guys are baggage handlers. That's the exact opposite of what they were doing. They bought the BT Tower in London to turn that into a hotel. Like what? Hiten Samtani (05:17) You build your business on something, but you want to build your legacy on something maybe a little sexier and you can kind of get into the space. Will Krasne (05:23) It's like when Tudor Perini bought into Miramax. You're a construction company, like, yeah, let's go to Hollywood, baby. And then like torch a bunch of money, but it'll be fun. Hiten Samtani (05:34) The reporting suggests the shareholders are going to go ahead and figure out how to get this done anyway. So what's the path forward? Will Krasne (05:40) This is a small enough check relatively. Hiten Samtani (05:43) I think they had talked about GSAM, Goldman Sachs Asset Management, potentially rolling in more shares as well. Will Krasne (05:48) They'll cover this to get it done. Because again, it's a controlled company. And they're basically taking it private because they don't like the stock price. There's a little bit of, oh yeah, they're going to add these rooms, which Tyler is going to do. It's going to be super creative, but there's just not a ton of room count you can add. They're just going to figure it out. GCM will roll more or whatever, and they'll get this done. Hiten Samtani (06:08) What does that look like for MCR? I mean, on the street. Will Krasne (06:11) The problem is that their performance hasn't been as good. again, part of that is COVID. That's not their fault. You can talk around that. The bigger issue is who's really going to take them seriously? Do remember what happened to Andrew Chung when he didn't buy- Hiten Samtani (06:22) with the HSBC tower. think he lost 35 million bucks. Will Krasne (06:26) been really hard for him to come back from. This is way worse. Don't syndicate or like not have the money for a take private. I've been there. Everyone's been there where you're like right about to go hard. Equity partner backs out. Like that happens. But again, not for public company. Like you don't sign the legally binding. It's almost like is Tyler stupid like a fox where he's like, got a $10 million option to be in this take private because someone's lawyer really screwed up. Hiten Samtani (06:53) And someone's lawyer did very well for- Will Krasne (06:55) Well yeah, mean it's zero sum, right? Hiten Samtani (07:07) I'm here with Aaron Krawitz from Bravo Capital. Aaron, let's get right to it. What's the story behind this mythical 100 % HUD approval record? Will Krasne (07:15) Pretty straightforward, honestly. We have an amazing team. We're also backed by hundreds of millions of dollars from funds and leading United States institutions. We're both fully HUD licensed and for a balance sheet bridge financing where we could finance deals over a hundred million dollars easily, like we just did in Miami, Brooklyn and Jersey City. Hiten Samtani (07:21) Tavernwell and also off. And what's the secret sauce? How do you put it all together? Will Krasne (07:37) Our top tier underwriting team. don't rush to market and hope that they stick. We know what HUD wants before we submit and we have a real balance sheet. So when we go, we really go. Hiten Samtani (07:48) You were telling me when we were chatting offline you closed a healthcare express lane deal in four days? That's absurdly fast for HUD. Will Krasne (07:55) It is, and that's why I get up every day. We want to compete and outperform, and that's the beauty of knowing the playbook cold. When we have tight adaptation, the right underwriting, that means speedy approvals. Hiten Samtani (08:02) documentary. And speed means a sponsor can close quick. Thanks, Aaron. Good to have you on. ⁓ Will Krasne (08:10) and you can find us at www.bravocapital.com Hiten Samtani (08:17) you We talked a couple of weeks ago about how there's maybe some cracks in the Bunsen burner. Life sciences was all the rage right in the early days of the pandemic, repurposing office space. It's going to be a biotech boom, et cetera. So everyone rushed to repurpose or acquire or develop life science campuses. Many of these places have not worked out so well. It's been a bit of a ghost town in some of these big life science campuses, which Will Krasne (08:45) Would you say really that this whole sector is clinging to life sciences? Hiten Samtani (08:51) There's one particular case that's just incredibly interesting. One of the venerable names in real estate investment, Fred Siegel of Beacon Capital Partners. Will Krasne (09:00) The predecessor firm was just the Beacon Companies, I believe. Massive Boston-based developer. SQL's dad started the company. He was doing toll booth construction. OK. Yeah. In like the 50s and 60s. And then did some of the biggest multi-use, massive campus developments in Boston and owned office everywhere. Eventually sold the whole company in the 90s, I think, to Equity Office. Yes, that's right. And so then Beacon Capital Partners is the Subsequent firm known for office. Hiten Samtani (09:32) They've had some black guys in the office market too recently. I've seen a string of lawsuits and CNBS workouts and a lot of distress. Right. And they're a pretty major landlord, I think, in the loop. Will Krasne (09:41) a very bad place to be major to land work recently. So they've been dealing with some dicey stuff on their own. And then now they're being sued by one of their operating partners for a life science venture that they had seeded. Hiten Samtani (09:54) company called Portal Innovations. Will Krasne (09:56) They were a wee work for life science a little bit. Hiten Samtani (09:59) You can kind of imagine these companies coming out of these emerging industries, right? Like, we're the middlemen. We can talk the language of both the developer and the life science people. Think of CoreWeave on the AI side as well, right? Yeah. There is an emergence of these kind of companies that say they can, like, space, right? Can talk to both sides. I deal with the goddamn customers so the engineers don't have... Will Krasne (10:20) Right exactly and so the offering part of Sue's beacon basically saying you guys haven't funded like you've missed capital calls and beacons response is essentially You're so bad at this you lost 50 million dollars and says that they don't have any obligation to fund Hiten Samtani (10:37) I love the ultimate LP here. When we're talking about a holding the back situation, it's always this ultimate LP. Will Krasne (10:42) Poor California teachers, like this pension fund. God, put it in SPY. Hiten Samtani (10:50) That's so rough. What's your favorite part of this lawsuit? Will Krasne (10:52) Beacon is saying that the operating partner charged excessive management fees and it's like, my guys, you wrote the JV. Hiten Samtani (11:01) When people are structuring these kind of thesis-driven bets, is there no mind paid to the downside scenario? And it seems like all these things are great when they're going, but when it turns, like, this is pretty amateur, some of the stuff that's being traded here. Will Krasne (11:14) So much of the investment management industry is just based on price go up. The actual operations of stuff is so hard. Negotiating one of these joint venture agreements is what's the ultimate org structure? Do you have a JV entity? Is it just you own a bunch of SPEs, pro-rata, or however that's done? Where does the cash flow? Is everything crossed? All of those questions are complicated and require a lot of legal disclosures and legal wrangling and legal fees, especially in a business like this, which was super management intensive. It wasn't like you're going to lease half a million square feet at a time to Biogen and collect the checks for 10 years. was a small bay industrial for life science. Hiten Samtani (11:53) this kind of dispute we're going to see more and more of in these emerging asset classes, which is you have a traditional real estate operator that is coming ahead with one of these newfangled, I can talk to both sides kind of companies. More broadly, we're going to see a lot of that. Will Krasne (12:08) We're going to be doing a podcast in a year about this happening in data center. Hiten Samtani (12:12) Yeah, Blackstone versus Coreweave or whatever. Will Krasne (12:14) Every partner is going to get sued to oblivion for not being able to deliver on these certain timelines. Just the basic bank account stuff, the construction draws. Where does the money come from? How are you handling capital calls? Because you call too much, the IRR gets fucked. You don't call enough. Like you have to end up doing like $25,000 capital calls to like fund overages, which is really annoying. Hiten Samtani (12:33) It's really hard to find the right chemistry on these things. Will Krasne (12:35) Especially when you're in a sector where you're fe- Hiten Samtani (12:38) Sorry, I got that. I set him up. Will Krasne (12:41) Almost missed it. It's really hard in these sectors too where you don't have the tailwinds when the things in your face Hey good news. We signed a lease cool. What do we have to do? We gotta spend three million dollars building out the space Hiten Samtani (12:53) Let's zoom out a bit, because I think the problems in this specific life science case are writ large in the sector. So, Banko's EK made the very uncharacteristic decision to sell a construction loan, a pretty massive construction loan, I think about $265 million. They were holding it for their friends, Sterling Bay, who I'm guessing they're like completely sick of at this point. Because you remember Sterling Bay was the Lincoln Yards take back seas as well. They've just sold one of their construction loans on a life-side project in San Diego. They sold it to strategic value partners, which is Victor Kosla, a distress death specialist. And they just sold it, I would imagine, at a pretty big discount. Will Krasne (13:33) count. To get those types of guys involved, it's got to be a pretty big haircut. And it also just means they didn't think there was any recovery. Sterling Bay, at some point we got to do like a full dive and it's really Hiten Samtani (13:44) they're related of the Midwest. Will Krasne (13:46) They went from local guys running around to like fun deals to massive company in seven years. Hopefully you're saying this about me that when Banko G is selling my loans in seven years, which I'm not defaulting on because of Loan Boss. Hiten Samtani (13:53) Hey man, everyone's gonna start somewhere. Will Krasne (14:04) So they sold that one. And then another deal that we talked about the first time we talked about life sciences, that got sold. Hiten Samtani (14:10) We talked a few episodes ago about Taconic and Silverstein's JV. I believe it was Taconic's Lab League is the name of the episode. We'll put in the show notes. But Silverstein came in as the majority equity partner and then has been unloading much of its stake. It sold a bunch of its stake in one of the properties to the artist known as Afinious. And then there's one more looming giant. So about a year ago, Bank Ozk received a rare double downgrade. And it was primarily because of this loan, I want to say north of $900 million. to a company called IQHQ, which is building a life science, not a building, but a campus in San Diego. And so OZK had this on their books, I believe their biggest loan. We should talk about this campus, because again, this is indicative of what's going on in the sector. You wrote in the show notes for prep zero tenants, I found one. I think they have one tenant. Yeah, they have one 50,000 square foot tenant. The problem again is we... Will Krasne (15:04) as the entire square footage is. Hiten Samtani (15:06) The floor plates here are pretty massive, 50,000 square foot floor plates, hard to get the small companies and the startups that we mentioned to speak for space like that. Will Krasne (15:14) People thought they were going to get basically single-tenant buildings or huge users to take massive chunks of these things. And that has not been the case. And the demand has been on the smaller built, fitted-out space, which was not what people were building. A friend of the pod that was listening said we had office, which was a shitty business. And then we got life science, which is just expensive office. Hiten Samtani (15:34) If they default on this loan, that's a pretty massive hole for OZK and that's going to be a pretty big shock for the life science sector in general. Will Krasne (15:43) Mike Comperato said back over the summer on the pod where a lot of these loans, you know what value is. And if you went to go sell the building now and it's less than loan value and the loans are still marked at par, realistically, like you were to sell this empty, it's going to cost so much money to get this thing leased. No way to recoup it unless you have a massive basis reset. Hiten Samtani (16:05) A lot of properties that were destined for life, say, have been now repurposed back to good old office. Will Krasne (16:11) which is a scary thought, that office is gonna be the savior. Hiten Samtani (16:16) One company that we've been keeping an eye out on is Alexandria Real Estate, the big public life science player. A bit of a strange departure there recently. Will Krasne (16:24) what their co-president head of the San Diego market he just bailed yeah was he defanastrated or bailed Hiten Samtani (16:30) It says personal and health reasons so I don't want to speculate too much but it was pretty sudden. Will Krasne (16:36) If only there was a vaccine for vacancy. Hiten Samtani (16:47) So, Will, you violate any dead covenants recently? Will Krasne (16:51) So funny you should ask. I have been in technical default recently. I mean, who among us? Right. But not since Q4. Ooh. And that's not because I paid off the loans, because that's when I started using Loan Boss. Hiten Samtani (17:04) I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that. Will Krasne (17:09) Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cash flow forecasting, impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve and then it's always vertical and you gotta alt HVT to have it go horizontal. Make sure the index match works, like ridiculous. Hiten Samtani (17:33) It just got it sorted here for- Will Krasne (17:35) Much better. So thank you, Lone Boss. Hiten Samtani (17:37) Listeners, check them out at loneboss.com. That's loneboss.com. And tell them the promo sent you. Okay, we thought we were gonna hold this one for a bit, because we wanted to chew on it, but it's moving so quickly, have to do it. Will Krasne (17:59) This is a biggie. Hiten Samtani (18:01) Would you say it's the pinnacle of drama? Will Krasne (18:03) we're really reaching the summit of this issue. Hiten Samtani (18:09) We should recap. We talked a bunch of episodes ago about the carnage in the rent stabilized market post the 2019 rent reforms, the perfect storm of rising rates and inability to raise rents on most of which was the standard playbook for a lot of this stuff, right? Like you would buy these portfolios, vacant CD control, individual apartment improvements, raise the rents that way. then you could make your capital improvements, et cetera. A lot of those paths to market rate. Will Krasne (18:30) Major capital improvements. Hiten Samtani (18:36) were gutted by the 2019 rent reforms. And so we've seen a lot of major landlords, A &E, example, Pinnacle, which is Joel Wiener, we're going to talk about kind of left out in the cold by this. And then there's the additional wild card of the new mayoral administration. So tons to talk about. Maybe we should recap where this Wiener thing stands. Will Krasne (18:56) It's 5,100 units of rent stabilized apartments, is just an enormous portfolio. This was easily a couple of billion dollars. Hiten Samtani (19:00) massive. Joel, as in 2017, Bloomberg crowned him a billionaire based on the strength of this and other run stabilized holdings. Will Krasne (19:13) So he had $550 million in debt to NYCB, now Flagstar, and is in default. Hiten Samtani (19:20) So Flagstar moved to foreclose and then Pinnacle did the standard throw it into chapter 11 bankruptcy, which is how we ended up where we are. Will Krasne (19:27) Not only though is Flagstar the lender, they also have our good friends from the Taze. Hiten Samtani (19:34) You need that Israeli bond spice to make this truly a great promo story. Will Krasne (19:38) It's not a New York real estate deal without the taste. Hiten Samtani (19:42) with the Israeli bond money and the Flagstar money, we're talking about north of a billion dollars in debt on this portfolio. Will Krasne (19:47) The left hand doesn't seem to know what the right hand was lending because Flagstar is arguing that instead of using proceeds to pay down their loan Pinnacle was paying the tastes ⁓ Hiten Samtani (20:00) No one knows where the rental income went is what Flagstaff said in their case. But it did not go to pay the lenders and appears to have been consolidated to pay bondholders. Will Krasne (20:04) That seems ba- tomato tomato. It is paying the lenders, it's just not you. Hiten Samtani (20:14) So this went into bankruptcy and Estel, I wanted to say, has kind of carved out a nice niche in this bankruptcy auction game. We talked a few episodes ago about one of our favorite deals, the SF Hotel Heist with Converse and a new bond. One of their guys was at the running point on that one too. So it's pretty nice gig if you can get it. Will Krasne (20:34) definitely great. This is a good cycle to be in that business. More of these coming down the pike and yeah, these are good for Daniel Parker. You said it, what? mean, Will Silverman, Phillips, they get the glam. Hiten Samtani (20:46) Yeah, they get all the glamorous listings, the office listings, the high street retail and stuff. This guy's been selling these massive multi-family unglamorous portfolios across the country. Will Krasne (20:57) So we're moving through the bankruptcy and an entity entered a stocking course bid. Hiten Samtani (21:03) Maybe we should define for people what a stalking horse bit is, because not everyone will One of my favorite terms in real estate. Will Krasne (21:09) Just to refresh everyone's memory, stocking horse bid is when someone comes in a bankruptcy, you show up and say, I'll bid this, and you sort of set the floor. And the idea being that you can potentially get a deal if no one else shows up. And then if you can often get paid a little bit if someone else buys it prior. Hiten Samtani (21:29) you can get a few million bucks for your troubles if someone else swoops in at a higher number. So you're the guy who's going, we're starting at X. You're basically playing that role. So in comes a company called Summit Properties USA. Will Krasne (21:40) USA that makes you know that they're legit. Hiten Samtani (21:44) So not much is known about Summit. I started doing some digging. It's a guy called Zohar Levy and he's out of Israel. He comes into a company called Summit, an existing holding company in the early aughts. Took it over, recapped it with Israeli institutional money and all kinds of other money. Goes into Germany, becomes a big player in the German market. And then I think early in the pandemic, he comes in in a big way in the US and in New York in particular. ⁓ Will Krasne (22:08) Germany, you're pretty familiar with the rent stabilization laws. Hiten Samtani (22:12) Exactly. Racks up, I want to say, 3,000 units, 500 keys. He bought a leasehold for Stupid Cheap on 44th Street as well. So pretty big player, but he makes a stocking horse bid in late December, about $450 million. That is about $88,000 a unit in New York City. It's so rough. Will Krasne (22:29) so cheap. It's cheap. that number actually goes down if Flagstar doesn't finance it. Hiten Samtani (22:37) If Flagstar NYCB, the long suffering lender on this portfolio, doesn't want to step up with the financing, that number drops to 420 million, which is about $82,000 a door. Will Krasne (22:47) I saw a LinkedIn post from a New York lender who's like I got offered a rent stabilized deal to lend on that someone's buying it a 13 cap and he's like I'm saying no because that's not like a real deal I was like, I don't know I'll lend on 13 Hiten Samtani (23:01) We've talked about a few opportunistic players like Hungry Like the Wolf, Peter Hungerford. Will Krasne (23:05) hunger for not stepping up here. He's got too much on his plate. Digesting what he bought. Hiten Samtani (23:09) So Summit comes in late December, makes the stocking horse bid. What happens in New York City January 1st? Will Krasne (23:15) New Mayor, his honor. Hiten Samtani (23:18) His honor comrade Mumdani comes in. One of his very first acts... One of his very first acts as mayor, hours after his inauguration speech, he visits a pinnacle building. Will Krasne (23:22) Our honor. and it does not look tremendous. Hiten Samtani (23:32) No, it does not. And he declares that New York City is going to intervene in this bankruptcy sale. Will Krasne (23:38) Basically he's doing what Donald Trump would do. Hiten Samtani (23:40) It's true. So he said, it's very true, actually. So he says the city is going to intervene in this bankruptcy sale. His tenant protection lieutenant is a woman called C.A. Weaver, and she was instrumental in passing the 2019 rent reforms that have become basically landlords' worst nightmare. Will Krasne (23:58) I'm really glad that we didn't elect Esme or the guy who signed that law. ⁓ Hiten Samtani (24:04) Cuomo, of course. So they say they're going to guarantee that any buyer who steps up makes repairing these units a priority. I don't know how a mayoral administration is supposed to vet buyer intent. Will Krasne (24:17) It's so complicated. And at the same time, no one's going to able to spend the money even at this basis because you can't raise the rents under the rent law. So unless there's some sort of massive property tax abatement or some sort of below market financing, no one's going to be able to do what needs to be done. Hiten Samtani (24:35) There was a pretty astonishing thing I want to put on the record here. When Mumdani's Corporation Council filed a brief, which asked for a 30-day stay on the deal, and also pushed the court not to approve any deal with Summit unless it got more intel, et cetera, et cetera, there was this one bit that cited an HPD analysis, which stated that the numbers, given the current rent stabilized rents in place, simply cannot pencil. Will Krasne (24:57) That's exactly right. Like the numbers don't pencil. They only pencil with massive below market debt from somewhere or property tax payment. Like that's it. Those are the only ways that these things work. And even like a guy like Hungerford, he's just trying to buy this stuff cheap enough to where he has runway betting that. Basically, it's like, I know I'm going to run out of money at some point here, but I'm buying them cheap enough that that point is nine years from now. You make a. Hiten Samtani (25:15) to wait it out. Yeah, regulatory art. Will Krasne (25:25) 20 hour hour within all the profit is baked in basically the last year. Hiten Samtani (25:29) The city's argument is really interesting. They're saying basically, if a deal happened at this number, the $88,000 a door number, it is basically not feasible unless the new buyer did some shenanigans with the rent stabilized units. The way I read it was like, this price sets an actor up to be a bad actor. Will Krasne (25:48) Any price does, really. Because what are they borrowing? They're borrowing, what, $300 million? But I'm just running through the math. Let's say round numbers, they're borrowing $300 million at six. It's probably five. It's $18 million a year just of interest. Once the amortization kicks in, it's probably like 25. So what's the average rent on these units? 5,000 units, know, $1,000 a month? Hiten Samtani (25:55) We're gonna get to that in a second. Yeah, not much. I mean, less than that in many cases. Will Krasne (26:17) $60 a month, $60 million a year, these things are not running at a 50 % NOI margin. I don't think you're covering debt service. Hiten Samtani (26:23) And landlord lobbyists are basically taking this brief from the city and saying, it's a bit of a cute read, but they said, it's validating that the rent stabilized system as it exists is a taking, which is basically a violation of the fifth amendment. The broader thing about is rent stabilization a taking can be argued, but they're saying that this admission by the city is basically them validating that argument. yeah. Anyway, so this happens, the Mamdani administration asks for a 30 day stay. The judge says, nah, we're not going to do that. Will Krasne (26:36) is. Yeah, okay, yeah. Hiten Samtani (26:52) and the auction goes through, Summit wins, there was an additional revelation that came out in this past week. Will Krasne (26:58) Right. So they were involved with a company called Denali Management. The worst landlord in New York lists are sort of clickbaity and like Hiten Samtani (27:07) They basically gauge how many open violations someone has, but you and I could buy a portfolio and we would automatically be worse landlords as well, you know? Yeah. Will Krasne (27:17) It's kind of nonsense, but the knowledge is up there and then we saw that the signer for a bunch of deeds that Summit claims as part of their portfolio is this guy, Jonathan, what's his last name? Hiten Samtani (27:31) Weiner? What? Turns out Jonathan Weiner is in fact Joel Weiner's brother. Will Krasne (27:37) mentioned a guy who put through his stuff in a bankruptcy. Hiten Samtani (27:40) His company, Jonathan Wiener's company, Chestnut Holdings, said that they have nothing to do whatsoever with this summit bid. Fine. And here's the really interesting part. The new debt that's going to be on the portfolio, we don't know exactly what it is, but we were told that it's $275 million less than the existing debt stack. ⁓ I'm assuming that's Flagstar taking a massive, massive write-down. Will Krasne (27:47) If you have to ask. Since 2019, the industry has really been waiting for the day of reckoning when this stuff has to change. And this does feel like a bit of a shift. It's not going to happen today. It's not going to happen in six months. But there's going to be more court cases coming down to challenge the rent laws. And this is becoming so top of mind, it's going to be one of the biggest issues during the Mamdani administration. Hiten Samtani (28:27) cornerstone of his campaign. Housing affordability, freeze the rent for the million or so rent stabilized units in New York City is one of his core campaign promises. Will Krasne (28:37) This is like Bush 88 where it's like... Hiten Samtani (28:39) Read my lips. No. Will Krasne (28:42) no one can make any of the renovations unless we raise the rent. Hiten Samtani (28:50) It's a really tricky position for the mayor to be in and it's a really tricky position for landlords to be in because to bet on the sector now is to essentially say, I'm going to write out this administration or they're going to come to Jesus on this specific topic. Will Krasne (29:02) What's so funny too is like they kind of look impotent because the judge is just nope, no stay. Hiten Samtani (29:09) It was a bit of a legal Hail Mary on the Will Krasne (29:11) If you know that it's a Hail Mary, like all you do is lose political capital. And if you show weakness here, people are just gonna come after you, come after you, come after you. Hiten Samtani (29:20) It's now gone to summit. We'll see what they do with these buildings. But again, there's not that much wiggle room built in. Okay, well, they have $300 million less of debt on the properties. They have a little more wiggle room than Pinnacle did. Will Krasne (29:31) But they have a little more wiggle room, they're not coming here and they're not going to spend $200 million fixing everything. They just can't. They're not going to do that. And that's not happening on this portfolio. It's not happening on any other portfolio until the laws get changed because the units are just going to get warehoused. People are just going to run them leaner and leaner and leaner to try to milk the cash flow until that day when the pen writes on paper changes this. That's what they're waiting for. Hiten Samtani (29:56) C.O. Weaver was on Inside City Hall and she was asked not just about this portfolio, but she was asked, is the city considering taking over these buildings at some point? And she, with a chuckle says, ha ha ha, it's too soon to say. Will Krasne (30:08) I think there are a lot of landlords who would say, you know what, have at it. Hiten Samtani (30:22) That's it for the Promote Podcast this week. An 11th hour snag in Soho House's take private has turned into a public embarrassment. Life science bets continue to fizzle out, and a longtime background New York player is now under the harshest of spotlights. Will Krasne (30:37) We'll be back next week with more CRE Insider goodness. A shout out again to our sponsors, Lone Boss and Bravo Capital. Borrow from Bravo. Manage it with Lone Boss. Hiten Samtani (30:47) More on them at loneboss.com and bravocapital.com. Will Krasne (30:51) This is going to be a big year in CRE. I'm excited to see what we get to cover. I wake up every day looking eyes bright, what's new in the news, and it just keeps coming. Hiten Samtani (31:03) It's nuts. Alright, I'll see you next week. Ciao.