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Larry's White Whale & Jamestown Puckers Up · The Promote Podcast

• Hiten Samtani (00:07) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani and that is the 50th time I've said that. Will Krasne (00:18) 50. In it wild. Pod's practically a preteen. Hiten Samtani (00:20) Yeah, it's crazy. Cue the braces and mood swings. Ugh, cringe. John was just three weeks old when we started this, I understandably so got some heat from the missus. for getting it off at that time. Will Krasne (00:35) I don't know how you pulled that one off. Hiten Samtani (00:37) I had a competition in me, as they say, and I knew that the industry needed this. I knew it was the right time and you were the right person to do it with. It had to happen and it was against all good judgment, but it had to happen. Will Krasne (00:47) When you went to the missus and you're like, we're to build a podcast studio. And she said, is it going to go to the nursery? you're like, well, that'll be the first. Hiten Samtani (00:54) That's exactly right. And we just celebrated his first birthday, so... Nozzle's off. Almost a year of doing this. A shout out to our sponsors, Loan Boss, the best in class CRE debt management software. Will Krasne (01:07) And Bravo Capital, a leading HUD in Bridgelander. I see you, HUD, adding in BTR to your portfolio. Well done, HUD. Hiten Samtani (01:15) We should start off by thanking our listeners. You guys have really been more than we could have asked for. Will Krasne (01:20) Yes you have, many many of you. Hiten is forbidding me from saying the number out loud, but it's a lot. Way more than I thought. And I'm pretty egotistical. Hiten Samtani (01:29) It's become a thing and we just hope to keep going. One promise we're going to make is we're going to keep pushing the boundaries. We're always going to try new things because that's what we do here at The Promote. Will Krasne (01:39) Absolutely. And again, real estate changes. If you don't change with it, we could be having the Fifth Avenue office of podcasts and all of a sudden the grounds out from under us. We could be the Charles Cohen of podcasting. Hiten Samtani (01:51) Or the Iranian government of podcasting. We got a bumper docket today, which befits this bumper episode. Larry Silverstein had his Anne Hathaway moment. It came true. Amex is a deal that will let two World Trade Center rise and complete the complex about 25 years after 9-11. The details here, though, are worth chewing on. Next, we jump on our zen bonies and check out Jamestown's push for a hockey team in Atlanta. Ready? my. Will Krasne (02:16) You're asking on the go. Yeah, you're go Hiten Samtani (02:20) ⁓ And finally, Blackstone is a data center offering that it wants to share with the universe. Exactly. Will Krasne (02:25) Not that one, the other one. Let's get started. The punch list, our signature rundown of the newsiest news in CRE. Hiten Samtani (02:37) We got to start with Iran. Geopolitics really isn't the promotes thing, but when it intersects with our little universe, we got to talk about it. two characters here that are very much in the thick of the promote universe are playing a pretty instrumental role here in whatever madness is going on in the Middle East. Steve Witkoff and Jared Kushner were Trump's basically appointees to go and figure out Iran. And the amazing thing the Wall Street Journal story had this past Thursday, they called Trump and they said, it doesn't look good. That was the clincher before the strikes on the weekend. Will Krasne (03:09) Jared Kushner, who's probably the stranger to calling his father-in-law and saying things don't look good. Hiten Samtani (03:14) Obviously, hoping that everything kind of settles down there a little bit, but back in New York, there is one asset that's really worth thinking about, 655th Avenue, which is the Manhattan skyscraper that is owned by the government of Iran. Will Krasne (03:29) the office portion only the retail is owned by the savviest of savvy guys. Hiten Samtani (03:34) SL Green and Jeff Sutton. That was an amazing move. So when the court essentially ruled in favor of forfeiture, these guys came in like a month later and had the deal sewed up. And now it's, I believe it's Nike Town. Will Krasne (03:45) That's exactly right. They moved from Trump Tower to here, right? That's right. Another example of how New York City real estate in particular is a Hiten Samtani (03:53) global sport, especially with this administration being pretty brazen about inserting itself into real estate deals. The Roosevelt Hotel with the government of Pakistan, the government of the US is in the mix there. I wouldn't be surprised given that the stated goal of the broader Iran thing is regime change this time, that there might be some action here as well. Will Krasne (04:13) Yeah, it doesn't seem to make sense that if there's a regime change that regime owns a pretty big chunk of Fifth Avenue. Hiten Samtani (04:19) Alright, next one. Kick us off, because this is beyond my understanding as a civilian. Will Krasne (04:25) Hudson Pacific announced Q4 earnings. They were less than stellar, unless you hear Victor Coleman spin it, in which case it was a transformative year for our cap stack. But they lost more than a quarter billion dollars in Q4. They lost more than half a billion dollars in the year. Hiten Samtani (04:38) Unless you think this was a blip, I believe that in the last three years, they've lost north of a billion dollars. It's kind of impressive how do you lose this much money running a real estate company? What about rents? Will Krasne (04:44) Celebrity S, they come in threes. I genuinely don't know. It's really tricky. They blamed their studio and soundstage rental business. But again, I have a hard time. Like you bought it a couple of years ago. That's right. Like transitive property blaming yourself. That was like the guy on Saturday morning being like that guy at the bar last night was a jackass. That was you, man. Just like 10 drinks deep. Hiten Samtani (05:11) Right before COVID, the thesis that content was king and all these streamers are going to need more and more space, these massive bets on sound stages. We talked about Blackstone with Hackman, for example, and this HPP is the other massive player in this thing and they're getting eviscerated. Will Krasne (05:25) Right. So their office portfolio is 77 % least, which is not good, but the studios are 67 % least, which is just really bad because that business in particular really relies on the marginal dollars. We're sitting here and it's been announced that Netflix is not matching Paramount's bid. And so Paramount's taking this thing over. Yes. And I've heard that Larry Ellison views this takeover of Warner Brothers Discovery as a real estate play because you've got the Warner lot, which is just. Massive. Iconic. And you've got the Paramount lot. You don't need both. And so there's all these billions of real estate that you can get rid of. And it's not dissimilar to another fallen icon, the Hudson's Bay Company, where Richard Baker in particular thought that, oh, wow, I'm buying this company for free because the value of the real estate is so great. what you sort of forget is that these are very specific assets. They're hard to repurpose, very expensive to repurpose. Hiten Samtani (06:17) Which is why Ben Ashkenazi can step in and buy the Neiman Will Krasne (06:21) I would also like to shout out the New York Times interview with Richard Baker of Hudson's Bay that came out I think a week or two ago. One of the most tone deaf things I've ever seen in my entire life. It does. It talks about his art collection, talks about the guy who designed his pool, talked about how he commuted to work by boat. Tremendous stuff. We'll link to it in the show notes. Hiten Samtani (06:32) art collection or something? to the hospital. We didn't say that the main thing, you would think that in the face of such staggering losses, everyone's getting hurt, right? The shareholders, obviously, the executives, maybe? Will Krasne (06:50) ⁓ yeah, they're getting hurt because they're getting scoliosis from having their wallets be too full and like they move to one side Victor Coleman got paid 40 million dollars Hiten Samtani (06:59) dollars in this past three year period essentially, right? Will Krasne (07:02) where they lost a billion dollars. Hiten Samtani (07:05) Make it make sense man. What is this? Will Krasne (07:07) It's Chinatown, Hiten Samtani (07:09) China. Next one, Zoran Mamdani goes to Washington. The President of the United States and the mayor of his favorite city, they're very warm with each other. Randomly impromptu, Trump brought him up in the State of the Union. He said something about, yeah, the socialist mayor of New York is a good guy. Will Krasne (07:15) Everyone's favorite bromance. I think it's game, recognized game, politics aside, Trump has this almost preternatural ability to like smell weakness. Hiten Samtani (07:35) Dude, okay, I was gonna use the same word, you took it out of my mouth. That's nuts. Go on. Will Krasne (07:40) If he has like a 1 % advantage, he'll just absolutely try to dominate you. And I think he just recognizes that, Mom Donnie, whatever you want to say about him, the guy's got the juice. Hiten Samtani (07:49) He's got the juice and he's got almost a Trumpian level of media savvy and media awareness. Will Krasne (07:54) The thing where he brought the fake New York Daily News to the- like, of course- like how has no one done that? Hiten Samtani (08:00) Why does this matter? It matters because New York City is dependent on Washington for federal funding to make a lot of these plans. Mamdani wants to bring to fruition his most recent trip. He went to get $20 billion for Sunnyside Yards, which is the Hudson Yards type project that they're hoping to do in Queens. Will Krasne (08:17) You need to build a platform, again, very much like Hudson Yards, and it could pave the way for 12,000 housing units. What's interesting though is that it's coming up amidst the sort changing political climate, and a lot of people now are like the yimbies are kind of winning. Hiten Samtani (08:32) hybrid between socialist and EMB that has become quite a force in New York politics over the last four or five years. This one's really fun. Big guys acting like the little guys. So the Koreans, a very important family in the landowning history of New York. They're like the Sol Goldman family, et cetera. The Koreans is one of them. They famously beat up A.B. Rosen over at Leverhouse back in the day. Will Krasne (08:55) Yeah, elbow is out for sure, but now the, ⁓ the glove is on the other hand foot. No, something on the other foot. Hiten Samtani (09:03) So the Koreans are alleging that Steve Roth, who's the overlord of Vornado, has such an intimidating vibe about him that brokers are afraid to be objective about Vornado related business. And this stems from this dispute that they're having over a ground lease where the Koreans believe that the rent should reset to 45X what it is now. There's something called a fair market value reset. Depending on what the property is worth, you're supposed to be able to adjust the ground rent in a commensurate manner. So it all comes down to the appraisal. Will Krasne (09:31) Right. And so when you buy these ground leases, you sign 99 years, no one really knows what's going to happen, but the ground can appreciate at a much higher rate than you think. And so if you signed a deal in 1930 at $2,000 a year for the ground, you might've thought, my God, what a princely sum. And now it gets reset to 20 million or something like that. And these are sort of hidden time bombs in a lot of these deals. And so that's why Safehold exists is to basically clean up these types of ground leases and give people predictable income moving forward. on this one, there was a rent reset coming and the question is, what is the site worth? And you might say, you just go get a couple appraisals, call it a day. the problem is, it's really, yeah. When you've got, it's like, is it a development site? Is it mid construction? You can make a plausible argument for like negative value or no value mid construction. Hiten Samtani (10:11) hard to do that. Is it encumbered? Like all these things came up. Will Krasne (10:23) And the question is who's doing the appraisals? Generally a mechanism where it's like, they can't agree, each side picks one, then you get a third neutral party. And on the third, if one of those groups like might want to do business with one of the parties moving forward, and one of them is one of the largest office landlords in New York and retail landlords and pays tens of millions of dollars of leasing commissions annually, and the other side pays nothing, maybe they're inclined to lean one way or the other. Hiten Samtani (10:44) brings up one of the most fascinating conflicts when you're a broker. Who are you really a fiduciary for? You're hired for a certain assignment. You're supposed to do right by that assignment. But again, brokerage is a relationships game. It's decades of business. And if your bread's getting frequently buttered on one side, that's the side you're probably going to pay more attention to. There's some amazing details in this lawsuit. They bring up one of the top, former top brokers in New York City, Darcy Stecham. She was one of the alpha salespeople. When Darcy... Will Krasne (11:10) once and future queen. Hiten Samtani (11:12) left CBRE to form her own company. There's a rare quote from Steve Roth who doesn't really talk to the press and he gave a quote like, hey, we expect to funnel a lot of business her way in the coming years. The Koreans are saying it's kind of like, yeah, nice thing you've got there. Will Krasne (11:27) They're not wrong. This is, again, how this business works. It's just funny because normally it's not a group that's multi-billionaires that are crying foul. The Korean net worth is probably like more than the tornado market cap right now. Hiten Samtani (11:38) That is it for the punch list. When we come back, we will be talking to World Trade Center. Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask, which was your least favorite? Will Krasne (11:59) First two, ugh, they were dreams. The third was a nightmare. Turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tab was really, really annoying. Maturity dates, extension options, rate caps, ugh. My spreadsheets were beautiful, but at what cost? Hiten Samtani (12:19) Sounds like you had good ROI, but your ROIBD, return on invested brain damage, not so good. So what changed? Will Krasne (12:26) I discovered Loan Boss. All my loans, live on one screen. No more, let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a Post-It note on my monitor for that. A Post-It note, a 10. But the one-click DSCR testing, every lender adjustment, every unique requirement, automated. ⁓ my God. Hiten Samtani (12:46) No more getting surprised by your own cap stack. Listeners, check them out at loanboss.com, that's loanboss.com, and tell them the promote sent you. Will Krasne (13:00) People told us, hey, you'll never want the space. You'll never rent it. Don't absolutely need to do it. Hiten Samtani (13:02) succeed you'll never lease it. This is happening. Larry Silverstein is getting the damn thing built to World Trade Center. It's set to rise. Will Krasne (13:23) several false starts, but the great man comes through in the end with one final triumph. Hiten Samtani (13:29) Rupert Murdoch was supposed to move the entire empire to two world trade. Bjarke Ingels was going to come into the mix here and design some radically different tower. They pulled out last minute. Will Krasne (13:39) I think remember reading somewhere that like it was so bad that Rupert had to call Harry. It wasn't even like Chase Carey or anybody. was like Rupert being like, yeah. Hiten Samtani (13:47) Mate, can't do it mate, sorry. They've had multiple stopstarts. Skadden Arps was in talks to anchor this building at one point. Time Inc was supposed to anchor this as well. Larry's been fighting and fighting and fighting. Will Krasne (13:58) Before we even talk about the redeveloped complex, let's talk about the old ones. So summer of 2001, Larry Silverstein is faxing in his best and final offer and wins the right to own the complex. Hiten Samtani (14:11) Six weeks before 9-11, he officially takes it over. This is the leasehold, The Port Authority owns the ground. tornado actually had a higher bid, but they pulled out last minute. So Silverstein essentially became the winner. He brought in equity from some pretty old school big name families in New York, including the Cari— Will Krasne (14:28) Lloyd Goldman was in there too? Correct. Hiten Samtani (14:30) So six weeks before 9-11, Larry Silverstein has the most important project in America. And then 9-11 happens and then he spent the last 20 plus years of his life essentially just trying to figure out how to get this thing rebuilt. Will Krasne (14:46) a 20-year effort. Yeoman's effort doesn't even begin to describe it. There was a better part of a decade battle just over the insurance proceeds because obviously how do you rebuild what's here? And not only how do you rebuild it, it's one thing to have an apartment complex like with a fire, but you've got these incredibly important buildings in lower Manhattan which are crucial to national security. The wonderful book, Power at Ground Zero. Hiten Samtani (15:08) Yep, we'll put it in the show notes. One quote from Sagalyn's book that is pretty damn powerful. She described the World Trade Center complex as a graveyard for nearly 3000 souls as well as a commercial real estate opportunity. Kind of says it all. Will Krasne (15:22) Think about where we were post 9-11. Hiten Samtani (15:25) Downtown was a ghost town, like there's no one wanted to touch that place. Will Krasne (15:28) Think about the security you needed, the amount of extra fiber. Goldman wanted to be set away from the street. This wasn't what we think of today. It wasn't just rebuilding an office tower. Hiten Samtani (15:37) And the other thing I think we can appreciate as promote heads is a lot of development action is generally quite clandestine down behind the scenes, right? That's just how ground up development works. If you are the proprietor of the single most scrutinized project in the world, you're getting beaten up in the media all the time. Silverstein famously railed against the New York Times for years after all this because they were pretty hard on him according to his memoir. Will Krasne (16:02) It's not only railing against it. I don't know what Larry Silverstein's net worth was in 2001. I would guess $150 million or something like that. Hiten Samtani (16:09) He was prominent, but he wasn't a titan. Will Krasne (16:11) And all of a sudden you're sitting here having to redevelop, as you said, the most scrutinized project in the entire world. And you're doing it when you don't have the money. That's what's crazy to me is like this whole time. I don't know what deals he worked out with his lenders, but he's got debt service the whole time. You obviously you're appealing the property tax. Yeah, I can't even fathom. And the organization he had was not the machine that is there today. Hiten Samtani (16:28) We've got the ground rent support authority and all of that. Silverstein was, as we've talked about in real estate, what makes it so fascinating to people like us is it's mostly mom and pop operations. Will Krasne (16:42) they really were at this point and it's really complicated to do this and then negotiate with all these insurance companies over billions and billions and billions of dollars. mean you've barely paid the premium when this happened. Hiten Samtani (16:52) We should say that the exact nature of the legal wranglings beyond our scope here, the main point we want to make here about this is that Silverstein was able to argue that 9-11 was not one, but two incidents. So you're essentially entitled to double payoff. Will Krasne (17:08) right because it was two separate attacks. Hiten Samtani (17:10) And so they split the difference. They ended up paying out four and a half billion dollars or so to Silverstein. That was the clincher. That argument which was crafted by Wachtel and Lipton-Mussur's themselves. Like the names in that. Will Krasne (17:22) When you see Harvey's gonna replace all the legal work, I'm like, you know what Harvey's not gonna do that Hiten Samtani (17:28) Pretty extraordinary. So he's going through this, he's got his insurance money, then he needs to build as many towers as he can build. He gets something called Liberty Bonds. Do you know anything about those? Not really. It's essentially tax-free federal funding that you can get for projects like these. And he gets Liberty Bond financing billions of dollars worth, I think two and a half billion or so for a bunch of the towers. As part of that, he had to relinquish the use of them for two World Trade Center. So you're taking the subsidies off the table there. Will Krasne (17:55) and so much harder economically to make work. so you're always on the hunt for an anchor. You can't spec build this thing. There was talks, I think at one point of like trying to get it to go Rezzy. And now though, you got a tenant who's, you talk about like folks coming into the area and then there's really just a reshuffling. Hiten Samtani (18:12) World Trade Center is looking for that anchor tenant. And we start hearing talks in the early 2020s about Amex, American Express. Don't leave home without it. We're content! Since the age The Reichman's but they're building because as we've talked about with the Reichman's and I think we need to do a special episode with the Reichman's at some point, but absolutely they're all about just moving, keeping the machine going, cross collateralizing this to that, all of that. they bought them and then Amex bought the lease hold at World Financial Place, which is now known as Brookfield Place. Will Krasne (18:58) Right. And they've been there ever since. And Brookfield Place has been struggling. Hudson's Bay Company, Saks, is not paying rent. They went bankrupt. They're huge tenant. Amex had been one of the anchor tenants. They are going to be moving over across the street to World Trade. But what's interesting is that they are not going to be a tenant. Hiten Samtani (19:14) They are not the anchor tenant. think it's been reported inaccurately in some outlets. Larry finally got his prize, blah, blah. But no, Amex is going to be the sole owner and occupier, which means that they purchased the leasehold. The only thing we're fuzzy about is who they bought it from. Is it from Silverstein or is it from the Port Authority? Too intricate and complex for us to know at this time. Will Krasne (19:33) Someday it's going come out and I'm sure that Larry's pretty happy about it, but at the very least he's going to get to build his tower and he's going get to do it with the rare instance where he doesn't have very much capital at risk. Hiten Samtani (19:44) Yeah, so it's a four-fee development job, right? But the other side is you don't get to participate in the GP economics, which I guess here isn't a bad thing. Probably okay. Will Krasne (19:53) We talk about construction costs right now, Boston properties. Hiten Samtani (19:57) 2100 a foot is what they penciled at. Will Krasne (19:59) before there always Boston properties I don't know what BXP is I refuse to know yeah Boston properties at 2100 a foot so we're talking four and a half billion dollars to build this tower Hiten Samtani (20:03) Fuck BXP. Someone inside the deal explained it in a very interesting way to me. They're like, the cost is the cost. If you want to build like tippy top office towers in Manhattan, essentially pencil high 1000s to low 2000s a foot is kind of where you're going to end up. In Hudson yards in Midtown, you can actually capture the rents that make that whole thing worthwhile. You can get rents of in the high 100s, low 200s even, right? In some cases for a few thousand square feet, you can even get 300 bucks. So with those kinds of exit rents in mind, It just kind of justifies going shovels in, right? But in downtown, there's still too much of a delta between what you can make and what it costs to build. So the standard model of a tenant in mind doesn't quite work without either a subsidy of some kind or this model, which is the owner-occupier model. Will Krasne (20:59) if you look at Amex, where are they going to go? They're going to go somewhere and pay that aforementioned high 100s of foot for two million square feet. So they're going to spend $200 million a year of rent, which like, okay, let's just go build a tower. We're going to be here for 40 years. Hiten Samtani (21:12) trend we're seeing mirrored throughout the country, right? Citadel with their Park Avenue project and Brickell, JP Morgan's giant and growing empire in Midtown. They're spending this kind of money on statement spaces that they own. Will Krasne (21:25) This quarter century saga is now really in the end game. And I think it's emblematic of commercial real estate at large. You had the most important assets being bought by ragtag group of people with fax machines. And 25 years later, they're building the last piece of this as a massive fee developer on an institutional basis and institutional scale. Hiten Samtani (21:45) project like this isn't just a real estate project. Will Krasne (21:47) This is a nation state in and of itself being built here. Hiten Samtani (21:50) The legal costs, the insurance, wrangling, all that, that's the soul of something like this. Will Krasne (21:55) Too often we sort of dismiss real estate as financial engineering or spreadsheet jockeying, or even on the other side, the guys who are like, I'm a dirt dog, I'm looking at all these things. No, what it takes really, like the real last level of this is the mastery of not just the political angle, but all the service providers, the insurance guys, getting the best lawyer, not paying him for months at a time to, you can float it and getting the. best crafted thing you can to maximize your proceeds. Win the PR battle in the court of public opinion, which can be as important as anything else. That's really what it takes. And that's like what a guy like Larry Silverstein can do. And honestly, fee development or ⁓ master lease, it doesn't really matter. This is the crowning achievement of his career. Hiten Samtani (22:40) This tower is going up. This tower is going up, which is great for Lower Manhattan and is great for New York. The bill has came down. My obligation now is to put it back. Will Krasne (22:41) This tower's going up. Hiten Samtani (22:59) Alright, I'm here with Aaron Krovitz from Bravo Capital. Aaron, let's get right to it. What's the story behind this mythical 100 % HUD approval record? Will Krasne (23:07) Pretty straightforward. We have an amazing team. We're a pure play HUD. We're focused on bridge to HUD all day. We're both fully HUD licensed and we also offer a balance sheet bridge financing where we could finance deals over a hundred million dollars just like we did in Miami, Brooklyn and Jersey City. Hiten Samtani (23:23) And what's the secret sauce? How do you put it all together? Will Krasne (23:26) This is our underwriting. We don't rush deals to market and hope they stick. We know what HUD wants before we submit, so there are no surprises. And we have a real balance sheet. So when we go, we go. Hiten Samtani (23:36) You were telling me when we were chatting offline that you closed a HUD express lane deal in four days? That's absurdly fast for HUD. Will Krasne (23:42) 10. That's why we get up in the morning at Bravo. We're here to break records. We're here to innovate. And when you have tight documentation, the right underwriting, that means speedy approval. Hiten Samtani (23:52) And speed means the sponsor can close quick. Thanks Aaron, good to have you on. Thanks Hattem. Will Krasne (23:55) and you can find us at bravocapital.com. For those of you who say that we only focus on the coasts. Hiten Samtani (24:12) We've shown you enough counter examples by now, so quit whining. Will Krasne (24:15) fascinating stuff going on here in Atlanta. So Jamestown, who developers of Google's Chelsea Market. What's the big mall in Atlanta they've got? Yeah, Ponce de Leon maybe. Hiten Samtani (24:23) Ponce something? de Leon only makes me think of Seinfeld Will Krasne (24:33) It is, yeah, you're right. Hiten Samtani (24:36) just set the context on Jamestown. Placemakers is exactly the thing. They actually just took over Camp North End. Will Krasne (24:38) They're placemakers. Yes they did. Charlotte from the Hammerdingers. And they've been tapped by Newark Life who owns the North Point Mall in Alpharetta to redevelop it. And for housing you might say? No. For office? No. For a hockey arena. For an NHL team. Hiten Samtani (25:01) We've talked so much about this on this pod about this race to get a big sports team into your hometown and how in the final equation it can be very profitable for developer all the real estate plays around that actual Will Krasne (25:15) They can make more money than the team itself. However, there's one small problem here. Hiten Samtani (25:21) I'm not a hockey guy, but does Atlanta have hockey? Okay. Will Krasne (25:23) They don't. But surely they've been awarded a hockey team. They also have not. Hiten Samtani (25:29) So this is a specu- this is just a speculative bet. Will Krasne (25:33) So New York Life took over this mall in Deedin Lou, and we'll get into the history in a minute because it's really emblematic of retail. But they are getting Jamestown to do a spec hockey development for an NHL team. what's even better is that you might think to yourself, OK, one guy is crazy. That happens. What are you going to do? There's two. They're competing. Hiten Samtani (25:53) There's another There's a rival play also in alfaretto I think they created one of our favorite things a special tax allocation district remember We talked about this with the Beverly Hills project. They did a special district just for that one Beverly Hills Vlad E project They've got something similar here Will Krasne (26:08) Right, it's to help incentivize building like a sports facility and so you've got Krause Auto Group, the CEO of that is pitching a three billion dollar mixed-use development and it's seven miles away from this one. So they're both competing for this non-existent hockey team. boy. And the best part though is that the NHL Deputy Commissioner Bill Daley told ESPN last year that the league views both bids as quote, aspirational. Hiten Samtani (26:33) harsh burn. So the idea is that the NHL is looking to expand the roster of teams. Where are they at? Will Krasne (26:37) They're at 32 and they've informed this is for Sportico which by the way great publication. So the NHL informed franchise owners that expanding beyond 32 teams. So it's going to cost at least two billion dollars to create a new team almost a billion dollars more than was paid to relocate a franchise from Arizona to Salt Lake City in 2024. But P ownership as we talked about is coming for all of these things and so it's. Hiten Samtani (26:59) It's become a big thing, obviously, in the NFL, which has opened the floodgates to money for the likes of Steve Ross, who just sold a steak in the Dolphins at a massive valuation. Will Krasne (27:08) We've seen it in the NBA as well too. The Lakers sold at a $10 billion valuation. The Celtics sold at $6 billion without owning any of real estate. So yeah, this is coming for all over the place. So there's more money. The NBA is talking about expansion. But let's get back to the deal itself. Hiten Samtani (27:22) characters here again my favorites Will Krasne (27:27) So the mall was the apex predator of real estate from the 60s, 70s and beyond because you had all these big massive anchor tenants expanding, which allowed for groups like Simon Properties and all these other mall developers who made hundreds and hundreds of millions of dollars. Because if you could show up with a big lease for an anchor tenant, you can go get the whole thing financed. Then the game was you basically give the space to the anchor tenant and then make your money on all the inline because the anchor tenant drove all this traffic. And so if you had the relationship with one big group, You could rinse and repeat all over the place. Hiten Samtani (27:58) popcorn and the soda, which is all the other retail. Will Krasne (28:00) You had the eye for the interchange. picked the right corner. The sky was the limit. This was sort of like the dying gasp of this industry. So North Point Mall was developed by HomeArt development. So like who cares what HomeArt is? Hiten Samtani (28:11) Isn't that the Sears? ⁓ Will Krasne (28:13) Sears so Sears really used to do it all you could buy a house out of a catalog. Yeah, so they sold it to GGP So GGP sort of managed it into decline obviously famously went, you bankrupt and the GFC Bill Ackman made a fortune buying the bonds and turning around one of the big equity stories early mid 2010s and then GGP sold to Brookfield great timing on GGP. Yeah, he's part Hiten Samtani (28:35) You would never know it from Brookfield's books that it was a bad deal. Will Krasne (28:38) Yeah, you never would. So then Brookfield hands it over to New York Life and Dean Lou because there was a competing center that got Hiten Samtani (28:43) Listen, Will, it's not significant to our business. Will Krasne (28:45) It's 2 % of our portfolio. So really though, what's New York life to do? They can't redo the retail because there's competing center on the better side of the highway. Maybe a Hail Mary hockey team take advantage of some of the heated rivalry buzz. Connor Story hosting SNL, know, maybe there's a way. Hiten Samtani (29:04) If it were me, I'd just put a Cosm in there. Fuck the actual hockey team. This is the ultimate culmination of John Gray's running videos. All the stuff you see on LinkedIn with all the sweat pouring down his face, meditating on the markets, this is what it led to. Will Krasne (29:37) It led to Blackstone launching a public company to buy data centers. Hiten Samtani (29:43) Wait, I thought they had one of those. Okay. Will Krasne (29:45) Not that one. A new one. Hiten Samtani (29:49) Okay, so not QTS. We've got a new vehicle which is aimed to retail investor specific. Will Krasne (29:54) Can you think of when they write the story of this time? think the epitaph is going to be Blackstone is giving millions of mom and pop investors a chance to bet on the artificial intelligence boom. Hiten Samtani (30:05) That is the headline in five publications already. Will Krasne (30:09) basically the two biggest AOM gobbling imperatives right now, getting exposure to AI and then getting that sweet, sweet retail money. Hiten Samtani (30:16) One of the biggest shifts in Blackstone has really been at the forefront of it is rejigging your firm to make it more attractive and palpable to retail investors is kind of the game now. Everyone's doing it, right? That's the reason for all these running videos, the swimming videos, the personal posts, all of it is to create a human face for these giant opaque fortresses. Will Krasne (30:37) It's really savvy because what they're not doing is what is going on with CoreWeave and Lancaster that we talked about the other week. Blue Owl. Where it's all the spec, this land debt, we've got to get the power. No one really understands that. The dentist from Olathe, Kansas isn't going to get that, but what they're going to get is like, hey, I've heard about this AI thing. I'd like some exposure. And Blackstone is basically saying, we're not going to be financing raw land, doing spec. We're going to be buying existing data centers, which you might think, okay, that's less risky. Hiten Samtani (30:47) They're getting hammered Will Krasne (31:06) it actually might be more risky given the obsolescence risk. Hiten Samtani (31:10) I was just going to say how state of the art are existing data centers when the technology is changing. Will Krasne (31:14) question because people have been talking about digital realty and Equinix. What's the actual cash flows if you count for like proper CapEx at these things? It's a good question. We don't really know. Hiten Samtani (31:22) The other question I have is when they talk about buying existing data centers, how many of these are coming out of Blackstone's existing portfolio of data centers? Will Krasne (31:30) Again, a great question which they definitely get asked and they said this is not meant to actually just buy QTS data centers that they've developed, which would be like a natural continuation vehicle by another name. Hiten Samtani (31:42) I think of, I don't know if we talked about it on the pod, but Blackstone started a 1031 DST. They did. And a lot of their acquisitions were basically from B-REIT. They just bought a bunch of B-REIT Sunbelt and folded it into this DST. That goes without saying. Will Krasne (31:55) With a huge fee load up front. But Blackstone has actually had quite a lot of success in this space. QTS, which they took over in 2021, has been hugely successful. Hiten Samtani (32:04) 10 billion dollar take private. I don't know if you read that piece about the culture clash between the QTS founder, who was like a hardcore Christian guy and obviously Blackstone's whole very suited up approach to this. He had a minister bless the sites of his data centers. Will Krasne (32:19) That's as good a risk mitigation as anything else is out of center. Hiten Samtani (32:25) But I think there was some fundamental conflicts between them about like how they could, when you could realize profits, how the promotes would be paid, all of that. There was a lot of interesting friction between the old guard and the new guard on those things. Will Krasne (32:37) There is a couple other interesting things that came out of this because they announced it. It was a big Bloomberg article and they talk about how in a year in stockholder letter, more than 20 % of Blackstone's real estate funds are exposed to data centers. Crazy. Hiten Samtani (32:52) Wait, a fifth of their fund is data center expo. Will Krasne (32:55) Depends on how you how you define this, but they said the quote was more than 20 % of Blackstone's real estate funds for wealthy investors are exposed to data centers. Hiten Samtani (33:05) That's quite astonishing. Will Krasne (33:08) It really is because as they get bigger and bigger, there's only like a limited pool of folks who can buy this. You can't sell this to like a syndicator. Hiten Samtani (33:17) With data centers, the problem is, and a lot of the hyperscalers have essentially created off balance sheet vehicles to invest in these things. So there's a quite a bit of opacity, massive capex, very, very long development cycles too. So not for the faint hearted, this would generally be final boss investor level, but now you're taking it all the way down to retail. Will Krasne (33:35) Well, they are. I think the secondary purpose too is to try to create like a tracker to basically say like, is the data center industry doing? And they hope that I think this will trade well, which then makes all the other stuff they're doing more financeable. Again, that's like final boss level jujitsu to make it work and basically take the retail money, pawn it off on them, but use that as a data point to help get the stuff you really care. Hiten Samtani (33:58) I don't know if this is a consideration yet is if the mom and pop classes are invested in data centers, does that give Blackstone more political juice to then go and build more data centers? Because this has been a massive logjam too, right? Will Krasne (34:11) It has. There's talks of power all over the place, like global infrastructure partners, somebody else announced the big power utility takeover in Virginia. Just for this, because basically this is the secondary trade off of data centers is that power is going to become more and more hard to come by. Hiten Samtani (34:26) see Loudoun County or Abilene or any of those coming after Big Bad Private Equity, but are they willing to go up against everyday Americans? Will Krasne (34:34) It's in all their pension funds already. They're fighting themselves. Hiten Samtani (34:46) That's it for the Promote Podcast this week. John Gray has run himself into Blackstone's retail Xanadu, and you too, Will, could soon own a piece of the world's hottest, most levered, and most complicated asset class. Jamestown joins a sports team party in Atlanta in a move that says much about where retail is headed, and Larry Silverstein will finally get to complete his World Trade Center puzzle. But the final piece will belong to someone else. And the bragging rights. Will Krasne (34:58) Take my money. he gets the best part which is the fees. We'll be back next week with more CRE insider goodness. Thanks again to our sponsors, Loan Boss and Bravo Capital. Hiten Samtani (35:20) You can find them at loanboss.com and bravocapital.com. Aaron and JP, if you're listening, really appreciate your support in these early days. It means a lot. Will Krasne (35:28) And our listeners, 50 episodes in. Really excited for this next 50 to keep delivering for you guys and they're gonna be logarithmically better. Hiten Samtani (35:35) Absolutely, and if we get to 100, which I think we will, I might allow Will to start calling you psychos. Dude, it's been a pleasure, man. Here's to the next video. Will Krasne (35:40) We'll see. Hell yeah. Love it. Here's to the next 50 and I promised to 10 I wouldn't do this, but 50! It's from Ohan Kampali. Hiten Samtani (35:53) I'll see you next week dude, thanks. Will Krasne (35:54) Ciao. Shit. Hiten Samtani (35:56) Hey, ciao!