Latest / The Promote Podcast / Carlyle Takes the Stairs, Drillman's Great Escape & the LVMH-Kering War

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Carlyle Takes the Stairs, Drillman's Great Escape & the LVMH-Kering War · The Promote Podcast

• Hiten Samtani (00:00) Remember those days as young bucks, know, strivers in the city, schlepping your couch up three flights of stairs in Park Slope or Cobble Hill? Will Krasne (00:07) It was actually 21st and 8th, right above a barber shop. it had an elevator that never worked. Hiten Samtani (00:14) So my landlord was like, as mom and pop as you can get, he actually lived in the basement with his family. But now that landlord would be. Will Krasne (00:19) That's New York for ya. Hiten Samtani (00:26) Carlyle Group, one the biggest private equity firms in the world. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. Hiten and Will here again with some serious spice this week. Hot hot heat. Carlyle and its partners are creating an asset class out of what used to be exclusively mom and pop domain. One of the central characters in CRE's mortgage fraud scandal, he's gonna basically walk Barry Drummond got five years probation and zero jail time. And finally, we talk about the frou-frou war between LVMH and Carrick. Real estate is an important front in that battle. All right, well, we got to start with Carlyle. I know you have a double personal interest in the firm. A, you worked there and B, David Rubenstein owns the O's. Will Krasne (01:19) I came very close to owning the O's myself because he almost ran me over in the parking lot one time. Hiten Samtani (01:23) Well, how do we get into this? This is fascinating. So Carlyle Group, major, major private equity player. They've amassed a mini empire of small Brooklyn market rate buildings. And now they're in talks with lenders for a half billion dollar refinance. We've been obsessed with this one. The promoter in general has always been thinking about how people create asset classes in these formerly mom and pop domains. And this one's pretty tasty. Two 65 townhouses, 98 % occupied and no rent stabilized nonsense to worry about. What they've done is they've stitched together, transaction by transaction through various partners, pretty big empire out of what used to be, as I said, like mom and pop domain. Will Krasne (02:03) This is actually classic Carlyle real estate. So Carlyle's run by Rob Stuckey, who I think he was a lineman on the University of Nebraska football team in the eighties when they were, you know, Tom Osborne running the Wishbone. He's also a black belt in judo and he's massive and has a shaved head and is incredibly intimidating. But what he likes to do to diversify risk is find a theme and then Unlike another firm in this sort of mega fund ilk where they would do, you know, they'd put out $200 million of equity across four deals, you know, 50 million. Rob will do $54 million equity checks. And part of the reason for that is that he thinks it's a way to diversify risk and Carl's returns have been, you can look them up. Your mileage may vary, but that's been his strategy. And what's interesting about that is that it's really hard to scale because If you have a $50 million equity check apartment complex, we call it a $200 million asset. Sure. You can run that with like one asset management analyst, like really covering it day to day. Hiten Samtani (03:10) Yeah, these are disparate assets. We're talking about this Brooklyn portfolio that they've put together. I think it's north of half a billion dollars worth of assets now, but it's like 10 unit buildings, eight unit buildings, walk-ups primarily. Will Krasne (03:23) Mostly smaller because they have a very small buy box and they're trying to avoid they're trying to be tax class 2a and 2b exclusively free market yada yada yada. Hiten Samtani (03:30) They kind of want to avoid what we talked about a couple of weeks ago, which is that radioactive rent stabilized. They don't want any of that. Exactly. They want market rate. They want it clean. Will Krasne (03:39) But the thing is, is that if you have an asset management analyst, they can only handle about 12, 15 properties a month because you're dealing with like rent decisions and issues that come up. And if you have 50 buildings, even if that's a dollar amount that a couple people could handle of their larger transaction. Yeah. So, so a Carlyle will have a thousand asset management analysts because it just takes that long to upload all the financials every month. Hiten Samtani (03:56) It's just a logistical clusterfuck. Will Krasne (04:05) It's interesting though, because it is really like top down because they pick a theme and then invest behind it. But it's not saying like Blackstone's like data centers are a theme. So we'll go take QTS private. It's you know, we think that there's a dislocation in this specific market in New York, for instance, because there's no new supply. The rent laws make it impossible to turn units from rent stabilized to free market. So they're betting on the fact that there's going to be no new supply and there's always going to be Hiten Samtani (04:33) There's always going to be demand. mean, these are great neighborhoods. New Yorkers want to live in these neighborhoods. Yeah. And also importantly, so they pick a theme and then they pick a partner to do all the blocking and tackling and dirty work and buying and all that. Right. So there's a couple of prominent ones here. The one that comes to mind is Greenbrook. Will Krasne (04:50) Yeah, but before we get into this, think it's important to talk quickly about how private equity actually invests. Please. So in real estate, there's really two ways that a private equity firm will do it. They'll do a deal direct, in which case, like they will hire the third party property management, or if they have in-house property management, they'll do it directly. The other way is they will find an operating partner. And this is really my business. Yeah. And That person will generally find the deals, pitch it to the private equity firm. They'll come to some sort of joint venture agreement. The private equity firm puts up 90 % of the money or 95 or 80. Hiten Samtani (05:27) if you're the operating partner, you're getting anointed, right? Like once you get that, that's a pretty incredible place to be. Will Krasne (05:34) It can be. It can also cause a lot of headache because if you run the math on these things, like sometimes, you know, it's not really, you're not really making that much money. ⁓ you know, especially the deals don't perform, but the point here is that Carlyle. Isn't they don't have the people on the ground in New York. They don't have the folks pounding the pavement, trying to drum up all these deals. They have green rope for that. Hiten Samtani (05:59) And we should also say, mean, Carlyle doesn't necessarily have the on the ground broker relationships, all of that. Will Krasne (06:05) Exactly. That's part of that. That's part of what your value is. The operating partners is you're the local expert. You're the sharpshooter and then someone allocates to you who wants exposure to what you can bring. So anyway, that's how those things are set up. So Greenbrook's running around buying all these things. And what happens is Greenbrook doesn't walk around with like cashier's checks from 1001 Pennsylvania Avenue saying like, let's buy this building. But what happens is brokers talk. Exactly. So, you know, Hiten Samtani (06:31) Price of the brick going up. Will Krasne (06:34) They have a buy box because the other thing is you can't go to an investment committee if you're 50 deals a year or however many deals they're doing. You can't do that. It's impossible. So what you do is you have a streamlined approval process and the way you do that is creating a buy box. And the buy box is how many units, what neighborhood, what type of construction, what percent free market, roughly what valuation metrics are you looking for. Hiten Samtani (06:57) broader thing is like, you're trying to institutionalize something that was previously kind of a scattered grab bag of assets. Will Krasne (07:04) That's really been the history of real estate private equity is that the apartment industry writ large was not institutionalized back when Sam Zell was running around or Barry Sternlicht was, buying apartments with cashier's checks at S &L auctions. hotels really weren't institutionalized. This happens over and over again. You you can make a lot of money if you front run these trends. And, you know, there's been a cottage industry of trying to like roll things to sell to people rolling up at Greenbrook. Hiten Samtani (07:31) I've definitely talked to smaller operators who made a really handsome profit buying maybe six or seven of these buildings and then selling them to Greenberg slash Carlyle over the years. Like I know a couple of people who did very well that way. Will Krasne (07:44) Absolutely. I mean, if you can put yourself in front of where capital is flowing, like that's the thing. Hiten Samtani (07:50) There are some other risks involved in this. mean, so these aren't rent stabilized buildings, we should be clear, but that whole private equity is coming for your home narrative very much played a part here. So Mother Jones, you know, pretty big liberal publication had a expose of sorts, was a national story and they zoomed in on certain things. So Greenbrook is run by two guys. So one of the guys is Greg Fournier who came from the Olayan group, which is the Saudi conglomerate. And the other guy was a guy called Fred LeCow and Fred used to work at BlackRock. So obviously Mother Jones seized in on, aha, the BlackRock guys coming for your home. Now they're out in the market to try to refi the portfolio and they're looking for a half billion dollar loan. Will Krasne (08:31) what's interesting is that small balance loans, which are generally, think they change the threshold to six million from seven and half for a Fannie or Freddie refinance. Those always price wider because the assets are riskier. If you only have eight units and you have one vacant for a month, like that's a much larger percent of your total GPR for the year than if you have a 300 unit property and you have one that's vacant for a month. So it makes sense that they price wider. And also like if one boiler goes wrong, like that's your profit for the year. What Carlyle has done is amassed a hundred of these. And so the risk is spread across that whole portfolio. And essentially what you're trying to do is get a lender to say, okay, you have this thing that price is wider and we can now finance a more official only because you have scale. And that's really the whole point of a roll up is you're changing your cost of capital based on the size. Cause it's no longer the risk of one building. It's this entire cashflow stream. And essentially what you're saying is like, we have exposure to this asset class in New York, which no one can add new supply to and we think there's upward trajectory and rents because of that. Hiten Samtani (09:35) I haven't heard of any other mega funds trying this strategy out. Will Krasne (09:39) I mean, a lot of people have done this exact strategy, but not backed necessarily by Carla. Hiten Samtani (09:44) The Aussies, ⁓ The Aussies tried something. Will Krasne (09:47) The Aussies did it. That's a knife. They had a re- Hiten Samtani (09:51) So we're talking about Dixon Advisory for the audience. So Dixon Advisory was this street that came along and they bought up a lot of value add Rezzy townhomes. So one to three family townhomes. They were buying though on sales comp and they blew up, they're gone. Oops. And now all those assets are kind of trickling back into the market. Will Krasne (10:08) Basically, entire thesis and really any rollup thesis is taking something that's not institutional, buying it that price, changing the cost of capital, either refinancing it and take advantage of it or selling it on. And at this point, like that's a big enough check that someone would be interested in it. And you sort of have the, you've created a new asset class. Cause the other thing too, is it's really hard to put this together. took years. mean, God, how many title agents that they deal with? Like how many... lawyers had to go do this. How many brokers? mean, it was, it's so hard to do any deal. Doing a hundred is just crazy. Hiten Samtani (10:43) Yeah, and I would imagine like these, the suits come in, they're looking for certain things when they execute on a deal, you know, they have a sense of what their archetype of a seller is. They have their sense of what an archetype of the broker is, and it's all different when you're dealing with this. Like this is not, you know, this is not the Newmark guys selling the stuff. Yeah, but these were like bit by bit, right? You're hitting each property, different kind of brokers. It's a whole riddle they had to solve. Will Krasne (11:01) I mean, that might sell the portfolio. Yeah. And again, this has been done. Like people did it post GFC. I think we've talked about them previously, like the Silver Shore guys. mean, this happens, but this is the first real one of scale post ⁓ rent law change that has really, they've made it through. And again, like in 2021, they have a lot of publicity and they sort of been quiet about it, but you wake up here and they have a half a billion dollar refinance, which implies, you know, seven, 800 million of equity value. Hiten Samtani (11:39) How big is this going to get? Is Greg Fournier one day going to be on the David Rubenstein show and talk about this? Will Krasne (11:45) I think you can't really do this forever. I don't want to speak for them, but I think it's you print your returns here. You've got a great qual on your CV and go do the next thing that's way less brain damage. Hiten Samtani (12:01) Maybe you go buy a data center company, take it private, who knows. Will Krasne (12:05) Who knows? last thing I would say is that Andrew Chung famously ran the New York office for Carlyle before he went full Chung and started his own firm at Inovo. They did larger chunkier stuff, which was different than the mothership in D.C., which again did these more disparate roll up strategies. So it's interesting to see again a little bit of inside baseball. Hiten Samtani (12:27) So Carlyle here, fascinating experiment from them. They have a half a billion dollar portfolio of primarily walk-up buildings market rate in Brooklyn and they're trying to institutionalize them. So we'll see how it So we've been talking about boardrooms and institutional players. Let's kind of go all the way to the other side. All right, the mishpacha mogul, Barry Drillman. The dude basically walked. He is at the center of CRE's biggest mortgage fraud scandal in a long, long time. And agency lenders were involved. It became a whole giant thing. And his co-conspirators got between five years and a year in prison. Barry Drillman gets nothing. She's got five years probation, a quarter million dollar fine. And my Yiddish will isn't great, but that's a boob kiss. Will Krasne (13:17) I mean that's like, Judge smells his nephew. I want a milkshake. I want potato You'll get nothing and like it. You get nothing and like it. Hiten Samtani (13:26) We should recap the scam here. So what happened was Drillman and his partners bought an Ohio apartment building for 70 million. Okay. But when they went to the lender and they went to Fannie, they showed a purchase and sale contract for $96 million. Same building. They also did the same thing with a Michigan office park, which they bought for 43 million, but show the lender or purchase and sale contract for 70 million. And this one dude had had a fake LOI and also had a couple of other things that I want to get into, but just. Brazen Scout. Will Krasne (13:57) I don't even understand how this works because maybe I'm just doing mortgages wrong. Every time I talk to Fanny or Freddie, saying, wow, you're capped here at these proceeds. We're trying so hard to get you here. I mean, and you can just show a purchase price that's twenty five million dollars higher than what you actually paid. And they're just sizing it right. Hiten Samtani (14:15) And that's not all by the way. Drillman tapped into this pretty common but pretty controversial practice called show capital. Do you know what that is? Will Krasne (14:23) I do indeed. So basically you have to show proof of funds to prove that you're a real buyer. Hiten Samtani (14:30) Something you're going through right now, we gotta say. Yeah. ⁓ Will Krasne (14:34) Yeah, I'm a real estate guy. you know, just don't have any money. ⁓ There's a cottage industry of folks who will provide that for you and wire it to your bank account at you serious rates for a couple of days. Hiten Samtani (14:48) It's unbelievable how much that stuff costs. The interest rate on those things is incredible. Will Krasne (14:53) But they'll do it so that you can go show your lender, hey, here, look at all this money. Hiten Samtani (14:56) Let's put that number in the context though. So I recently saw in a lawsuit, I saw a guy who loaned, I think it was $15 million for a matter of days. And you want to guess how much the dude had to pay for the privilege? Will Krasne (15:08) 300 grand. Hiten Samtani (15:12) $750,000. Good Lord. So that's what we're talking about here. All these things came into play here. They got caught. Drillman was the first to plead guilty in late 2023 and was the last to be sentenced. And everyone was like, why is he the last one to go? And people started talking about him being a moser, which is basically snitch. Will Krasne (15:33) Isn't this basically the prisoners dilemma that if you go first you get the best deal and we just proved it out? Hiten Samtani (15:38) Droman hired big-time criminal defense attorney Jeffrey Lichtman. Will Krasne (15:43) Did he use show capital for the retainer? ⁓ Hiten Samtani (15:46) Lichman in court basically talked about how Drillman started getting nervous about the scam and knew that this was going to not end very well potentially. So he recorded a conversation he had with one of his co-conspirators in which they detail, basically Drillman had him say, all right, how's it going to go? How are we going to do the crime? And so he has this ammo and apparently at some point when he felt the heat on him, he basically told Lichman to go Will Krasne (16:04) we gonna do the crime? I forgot, can you tell me? Hiten Samtani (16:16) and hand this over to prosecutors. He's like, I don't want any part of this anymore. We fucked up. Let's get it right. Will Krasne (16:22) I honestly it sounds like Barry Drollman was the smartest guy in this whole scheme. Hiten Samtani (16:28) I'm going to quote you something that Lickman said to TRD after he said, in 35 years, I've never seen it happen where somebody's turned over such a crucial piece of evidence that caused for guilty pleas. And we expected nothing. Will Krasne (16:44) It's, I mean, what did Stringer say? Hiten Samtani (16:47) Is you taking notes on a criminal fucking conspiracy? the fuck is you thinking? Will Krasne (16:51) Again, for the kids out there, don't ever take notes because they can't subpoena air. But if you do take notes, definitely cut a deal first. Hiten Samtani (17:00) cut a deal for us to have it so that you can go back to the casinos and Surfside right after your sentencing pretty much. And so what happened here, Aaron Puritz got the maximum, he got five years in prison. Fred Schulman got a year in prison. Ellie Puritz, I think got two years in prison and Moshe Silber got two and a half years. Barry Drillman, five years probation, no prison time. Will Krasne (17:23) I mean, is he going to have to go coach a plucky peewee hockey team? Hiten Samtani (17:29) Barry Drillman. He did turn it up in the courtroom. He was talking to his family and he says in the courtroom, you your love is the only thing that keeps me going. And then get this, he also did the eye dab, which I've always found very effective. Took his glasses off and he wiped his eyes. The reason we're talking about is not only this case, but this case created a ripple effect across the CRE lending landscape, across the agency lending landscape. Will Krasne (17:47) Okay, so it's time for a little skim the Hollywood. Hiten Samtani (17:58) appraisers were dinged, title insurance firms were dinged, brokerages were dinged. So it had a pretty big fallout across the industry. Will Krasne (18:07) Yeah, and it has huge effects because as we've talked about numerous times, Fannie and Freddie are the biggest liquidity providers for debt capital in the multifamily market. So if anything changes, those approval processes, it has huge effects on pricing. Hiten Samtani (18:22) Those guys are going to prison. Aaron Piritz, believe, is in Otisville, but Barry Drellman is going to be back in Surfside in no time. You want to cook on your boy Arnault for a sec? Will Krasne (18:38) I just love anybody who goes from Florida condo construction to having an enormous multi multi multi multi billion dollar fortune built on handbags. I mean, it'd be like if Michael Stern bought Hiten Samtani (18:51) I wouldn't put it past the Will Krasne (18:53) But at the end of the day, all of this stuff is real estate. It's one of the reasons why we do this podcast is that everything touches real estate. Hiten Samtani (19:00) Everything comes back to real estate or starts at real estate. It is the origin and the destination. So we should back up. We're talking about LVMH and caring. We're talking about the luxury real estate war. We're talking about control of some of fifth avenues, most iconic storefronts and corners. And this war is basically a broader battle about for luxury supremacy. And LVMH has very clearly said that real estate is part of its, it's like part of its toolkit to crush its rivals. Will Krasne (19:04) Exactly. It is. I one of, think, the most underrated, fascinating transactions of the last 10, 15 years is LVMH buying Belmont hotels. Yeah. You think, what would a luxury conglomerate have to do with a very intensive, capital-heavy hotel chain? Hiten Samtani (19:49) Did I ever tell you I went to the Belmond in Sicily? Fucking beautiful. You're having your Negroni Spagliato and you see Mount Etna in the background. Will Krasne (19:54) It's something. My wife and I did our honeymoon at a couple of Belmont hotels and everything is all VMA. And I mean the sheets are Loro Piana. It's like I've never slept like that in my life. What they bought though, they didn't buy a chain of hotels. They bought a chain of captive showrooms for the richest people on earth. Hiten Samtani (20:19) That's I was gonna say. It's the best product placement of all time. This is their dream buyer basically in these hotels and you're exposing them. It's like a try before you buy if you think about it. Will Krasne (20:28) the best type of marketing because you don't it's not in your face you're just like wow I slept phenomenally in these sheets Hiten Samtani (20:35) I feel like Johnny Anneli. Will Krasne (20:37) But exactly anyway this coming back to real estate is that they don't care what the no I have the property is they care basically like how many Incredibly rich people can we have and have as much time with our products in organic way as possible? Hiten Samtani (20:53) And does it feed back to the empire? That's the whole thing. Will Krasne (20:55) It's customer acquisition strategy and it's a marketing strategy. So it's money that they don't have to spend somewhere else because they have the people captive for so long. The same thing is true with retail storefronts. They're never going to make their money back on the Tiffany store. They spend so much money there. They're never going to make their money back on the handbag on Fifth Avenue necessarily either. But it's not about that. When you're in that store, it's about you selling to the highest end customers. But it also means that your competitor can't because this is a zero sum game. I don't know, 50 corners in the world that matter. Hiten Samtani (21:28) So Jeff Sutton, who sold carrying one of these properties for almost a billion dollars, almost $8,000 a foot blended, here's what he said. He said, in retail, luxury guys want to be on one block. That's eight corners, four owned by tenants, two long-term leased, two I-owned. That's it, boom. So supply is so restricted that you can basically, for the right buyer, it's worth whatever you can get. Will Krasne (21:54) Yeah, it's not bought on a conventional metric. It's bought on something else. Hiten Samtani (21:58) And think about it, so I went to college in Canada. There was a theory called defensive expansionism. And the whole idea was that the Hudson's Bay Company, because America was right there, because America was right there, had to make sure that they were pushing into new and new frontiers. Otherwise America would come in. And that's kind of what's happening here in a weird way. Caring had to act because LVMH was acting. ⁓ And then it keeps going back and forth. Will Krasne (22:09) R.I.P. I liked his theory. Hiten Samtani (22:26) So Caring's bought in, LVMH is buying not only in New York, it should be said, right? Highest of high end locations in Miami, in London, in France, right? They're buying up all their brick and they don't care what they pay because they can essentially use it to bully their rivals. So Caring, which paid, as I said, nearly a billion bucks for 717 Fifth Avenue, which they bought from Jeff Sutton just a year ago, is already looking to take some chips off the table. They're in talks with a private equity company called, I think, Ardion to sell a 49 % stake. And I'm wondering why that is. I mean, is this a sign of financial trouble? Is this something else? It's a little bit. Will Krasne (23:05) convoluted it because there's sort of a handful of strategies here you know we talked with a good friend of the promote who understands this market very well and he basically says there's sort of three paths here the first is one we're asset light yeah we lease everything and paying whatever rent per foot which is insane is okay because we're asset light the second is there's only you know that what we talked about earlier there's only a handful of true a plus corners Hiten Samtani (23:09) of our boys. Yeah, we just lease our ship. There's eight corners. Will Krasne (23:34) Exactly. can get in trouble because if you say that it makes it easy to overpay for anything else saying that it's one of these eight corners. It's like the people who bought, you know, him stock thinking it was Eli Lilly or whatever and Hiten Samtani (23:46) Trying to get on Galloway's show and you're trashing him is not gonna work. Will Krasne (23:49) trying so hard. Have me on. Let me just cook. But basically saying that there's only a handful of, you eight corners in the world, and we're going to be leasing it forever. And if we're not, it's because something horribly bad happened to our company. So instead of leasing it, let's just buy it now. So we control it forever. We can't get kicked out. We can't get bullied by our landlord. And then the third is Hiten Samtani (24:11) We want to control our real estate. We don't want to go anywhere. We want our dirt. We don't want some Fifth Avenue landlord basically kicking our ass up and down. So we want to hold it. We want to control it. Will Krasne (24:20) But it's also, it's a lot of money. Like, why don't we syndicate a little bit? So let's sell that and our exposure, which, you know, could be the best of both Hiten Samtani (24:28) And the backdrop here is, mean, caring is dealing with the luxury slowdown in China. They've talked about slashing some costs related to their real estate. I think they want to shave a couple billion off their real estate bill. So this is a way to do it without giving up control of those prime assets. Will Krasne (24:43) you're still on 51%. I mean, it's the same way you can control a tech company with 10 % economic stake with your voting shares. Happy Hiten Samtani (24:51) on. Will Krasne (24:54) At the ultra high end of retail real estate, it's the have and the have nots and carings trying to be both. Hiten Samtani (25:06) Alright, I was gonna let you go, but I got this prospectus. This massive prospectus. From the TSX, the Toronto Stock Exchange. was like, what the hell is going on here? So I sent it to you and we should tell the audience like we've literally had maybe 90 seconds to look at this. So this is half baked as it comes. Will Krasne (25:25) Right, but that's honestly kind of the best for this. So long story short, Go Partners, which is the JV between Myra Orbach and Josh Gottlieb. Hiten Samtani (25:34) Josh Gottlieb, also known as Black Spruce. People might be familiar with that name. Orbeck is a big, big affordable housing player, right? Will Krasne (25:40) I think he might have just gotten some cash today, because the Timber Wolf sale was approved. Hiten Samtani (25:44) These guys are incredible. And then there's reportedly one more partner who I'm again a little bit skeptical about, Floyd Mayweather is supposed to be an equity partner in his portfolio. Will Krasne (25:54) Yeah, I think he's an equity partner in this the same way he can, you know, read the Odyssey. Hiten Samtani (25:59) Anyway, so what's happening here is that Go Partners is spinning about 2000 their units and these are prime Manhattan luxury resi rentals. So part of the solo portfolio, which they bought from Stefan Slaviev and the American Copper Buildings, which they bought from JDS. And they're putting them all together into a REIT on the Canadian Stock Exchange, the Toronto Stock Exchange. Will Krasne (26:22) Yes, they are. And what's interesting here and what I'm excited to dig into is that they paid a full price for these buildings because they are, you know, to quote Daniel Thacker's super prime, the suites are big, they're 99 % occupied, the average rents are 6,500 bucks, know, mid 80s a foot. So these things are just cash machines. think Stefan sold these in part to pay off the estate tax. Correct. From his dad. And so that's how Meyer and Gottlieb got got into this and then obviously they paid up for the American copper building. But what I'm interested in digging into is I remember RXR provided a humongous slug of prep on this. And just the quantum of prep was I think it was like a hundred and something million dollars. And so I'm interested to see whether this was a way for them to look at getting a little bit of equity out of this thing and de-levering because right now they have long-term debt that's at pretty very attractive rates I should say. And so they don't really have a Hiten Samtani (27:00) They So Athene, our guys from Athene, who we've talked about on this podcast before, they're a lender in 685. Yeah. Yeah. And we've talked a lot about how Apollo is very ingeniously basically created a perpetual capital machine, right? Through its insurance arm. And they're using it to fund all these bets. Will Krasne (27:37) I want to dig into operations, see the financial statements, ⁓ see the indebtedness, and the market sections of this are going to be nonsense. ⁓ All that stuff is kind of boilerplate, but you get to see a little bit of the curtain of these cash machines. And then what you can really do, which is fun, is look at other big landlords and sort of back into what you think their cash numbers are. I will say that this is definitely a TSX deal because looking at these expenses, you know... I personally need to fire my property management firm because I can't get my IFRIC 21 fair value adjustment of investment property expenses under control. So I need to find somebody else who can help me rein that in. Hiten Samtani (28:16) reading this right I'm pretty rudimentary with this stuff but am I seeing a nice loss there for the for the year ending September 30th? Will Krasne (28:23) There's so many adjustments here. It's kind of nonsense. Like saying that you have $42 million of revenue in a three month period and then only 5.6 million direct property expenses is kind of like crazy. Hiten Samtani (28:35) fair to say that we should treat these numbers like the Canadian dollar and really not pay attention to them? Will Krasne (28:40) Yeah, I mean, there's there's things in there that you can glean, but a lot of these are non cash like fair value adjustment and investment property is non cash amortization of mark to market adjustments and non cash financing costs, loss on modifications of mortgage payable. A lot of that's just like not I mean, Hiten Samtani (28:56) The immediate reaction that we're seeing, cause I posted this on Twitter right before we started recording. It's like, ⁓ these guys are really in dire need of cash. Why is that the takeaway from this kind of move? Will Krasne (29:05) because you can't refi it because they already have really good debt. They can't really recap because they already have pref, which makes that a lot really hard. Hiten Samtani (29:14) You gotta go listen to episode seven, The Rise of Pref Guys, if you're from, if you want to catch up on that whole thing. Will Krasne (29:19) And you don't want to sell because frankly, like they're probably going to perfect the loss given where they bought this. ⁓ Even though I haven't flipped through the valuation, I think this is worth 2.8 billion. There's also big tax consequences, whatever. If you go into a REIT, you can also exchange your units for P units and REIT units, which have very favorable tax consequences. Hiten Samtani (29:37) Hunter is tweeting. He tweeted when he saw the financials, said, LOL, WTF is this and then he tagged, I guess, a Toronto stock account. said, you guys called us a financial statement. What are you doing up there? Will Krasne (29:51) Yeah, it's a great question. ⁓ Is this going on the junior soccer change or is this the full one? Hiten Samtani (29:57) This is a pretty raw ass react analysis, but what are you most interested in finding out? Will Krasne (30:05) How it was put together, who the ultimate capital is, I don't know if we're even going to find that in here, but that's really what I want to dig into. Because this is an enormous amount of capital they put together to buy these things and who provided it. Hiten Samtani (30:21) That's it for the Promote Podcast this week. We'll be back next week with more CRE insider goodness. Well, that was almost a too juicy one. It was a lot of. Will Krasne (30:30) juice. will agree. But that's why we love doing this podcast. So please like, share, subscribe on every different platform. I just have a feeling that it's going to be a very, very big summer on the real estate front. It's incredibly hot and people are going to go insane. Hiten Samtani (30:39) Every f***ing of them. 100 % will, thanks dude. Will Krasne (30:49) Thank you. Hiten Samtani (30:52) Ciao!