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Reston Peace, Senioritis & A Capstack Crisis · The Promote Podcast

• Hiten Samtani (00:03) We obviously need to say something about the New York City mayoral election. CRE's reaction so far has been predictably unpredictable. Will Krasne (00:10) think my favorite was Barry saying that Starwood Capital Group is going to leave New York City again, even after they already left during... Hiten Samtani (00:18) ⁓ That's at least entertaining. The kind of the gnarliest one was JLL rainmaker Scott Panzer. boy. I mean, he basically compared Mamdani to Hitler and then was fired and then people got mad at JLL for letting him go. So, sorry, pretty special stuff. Will Krasne (00:31) As John Malone said in his recently released memoir, when someone else got fired for comparing someone to Hitler, no upside. Not even that it's bad, just no upside. Hiten Samtani (00:41) It's rough. Listen, there's more to unpack during the transition. We're probably going to talk about this in the next coming weeks. My take. It isn't great for America's most important capitalist city to be run by a democratic socialist. I think that's pretty clear, but maybe cool it on the rest of the stuff doesn't seem productive. Will Krasne (00:56) No, I agree. And again, the options were Bray Guy or the guy who signed the rent law that ruined everyone's business. So it's not as if that he was running against John, our capitalist. Hiten Samtani (01:15) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani We're chatting in the Democratic Socialist Republic of New York and this week we're going to talk about a couple of really interesting things. We're talking about two big events in the senior housing space. Blackstone's fire sale and the Sonita CNL merger. It's a pretty gnarly business to operate senior housing, but there's lots of room for creative structuring. Next, we look at behind the scenes wrangling and one of Brooklyn's busiest projects. Will Krasne (01:21) and I'm Will Krasne. Hiten Samtani (01:43) Jonathan Landau, he's attempting to build Brooklyn Heights' tallest condo. Will Krasne (01:47) after building the most pirate condo. Hiten Samtani (01:51) And finally, BXP is cashing in on legacy assets to fund its development pipeline. Superdolls ain't cheap, Will Krasne (01:57) They are not. You know what else isn't cheap? Our ad rates. Brands. Hit us up at partnerships at thepromote.com for advertising if you want to get in front of this growing audience of CRE rainmakers, trendmakers, hitmakers, building makers, and allocators. Hiten Samtani (02:11) and allocators. And to read about data center, SASB structures, Chinese capital, and other exclusive nuggets, check out the Promote Insider. You can find it at thepromote.com slash upgrade. Founding memberships close up pretty soon. All right, let's go. Let's talk senior housing, two big deals we need to discuss. Let's start Blackstone. Bye. Will Krasne (02:31) it, fix it, sell it, didn't really work. It was more buy it, it's a lot more broken, so let it all off. Hiten Samtani (02:37) I think you're talking about the general Blackstone playbook. Come in really hot, scoop up a bunch of massive assets in a space, do some creative financing behind the scenes, operate the hell out of it and then sell it at a generous markup. Will Krasne (02:50) Right, but as Howie Day said, even the best fall down sometimes. No, it's from, well, kind of, but it's from Howie Day's collide. Great soft rock hit of the early 2010s. So senior housing has been a boom and bust cycle over the last two or three cycles of real estate because it was super oversupplied, then was a victim of its own success. Vagancy rates went through the roof. And the other thing is these are really hard to operate. Hiten Samtani (02:53) Is that a breaking a hip joke or what? You You need to be very specialized for this. Older people have a lot of needs and things get pretty messy pretty fast. Will Krasne (03:22) To give you an example, I did a deal with a senior housing operator where we sold something to him. He was building a tower to try to get younger people into his program. And what he said is, I can lower the age of entry by one year across our portfolio, the actuarial math is just astounding on the back end because it's like pet insurance. You pay for stuff that you don't use until a dog gets to the end of the road and then you pay tons. It's the same thing here. If you can get people in early, make a lot of money off them, and then when they need all the care, that's where all the expenses come in. Like, it's really about trying to get as much of that profit up front. ⁓ Hiten Samtani (03:56) these look like? Is this like the last scene in The Irishman? That closing door shot? ⁓ Is that what we're talking about here? There's assisted living facilities. Will Krasne (04:00) Don't shut the door. There's skilled nursing facilities. Active adults on the complete other side, which is basically just apartments but single story. You got memory care, acute care, and then various levels of in-home care. And at the lower level, so independent living, IL light, that stuff runs pretty much like apartments. You have to have more programming, ⁓ more community events, stuff like that. And then memory care, you have locked floors, and that's a lot more involved. But the bigger thing I would just say is that Blackstone had a thesis and they tried to invest demographically so everyone's talking silver tsunami, you all the boomers are aging into this. Right. And then they just ran into COVID. And so these occupancies went down. They were really hard to staff. Yeah. And costs went through the roof. Hiten Samtani (04:44) tailwinds, all that good stuff right? I would imagine much more scrutiny of operations, et cetera, in situations like that. And I think Blackstone took some hard ratings on some of their assets as well. Will Krasne (05:03) They definitely did. I think, again, part of it, is just coming back to staffing. We talked about why I love extended stay hotels, because you can run it with like three FTEs. this is like you could run the Snack Shack with three FTEs. Hiten Samtani (05:15) Yeah. So it's operationally very intensive. Then typically Blackstone and most other operators would hire specialist operators to run these kind of complexes, right? So I think- You have to. Blackstone had a partnership with Brookdale. Will Krasne (05:29) Right, exactly, one of the largest senior living operators in the country. But it's the same as, it's really hotels as well. It's not like people are vertically integrated and multifamily, like, okay, fine, like you can self-manage industrial, but like, you're not seeing a lot of groups out there that self-manage seniors along with other stuff. You'd have to be like a specialist. You get a great quote in here from Matt McConkey of Turnbridge Peak. What a firm name. And also like great alliteration on his name too. You're buying an apartment inside of a hotel, inside of a restaurant, inside of a medical clinic. Hiten Samtani (05:57) That's a lot of layers of operations he added. So Blackstone brought in Brookdale and then they replaced them and their new playbook was like, let's try a bunch of regional operators of these things. It might work out better. Will Krasne (05:59) That pretty much says it all. Generally, I think that's a good thing because these huge behemoths, like if you're on the apartment side, Grey Star, if you're on the hotel side, Cambridge, sorry. Sorry, you who you are listening to this. At the end of the day, your business plan is as good as your worst on-site person, no matter what your asset class is. So if you have a regional group, you're more likely, the argument is, to get the best person on-site on that squad. And the question is, how good are they relative to the median person at Grey Star or Brookdale? So I get the thesis, and frankly, it's what I do. on my own work also because Bob Faith wouldn't pick up my calls. Hiten Samtani (06:44) That's fair. So Blackstone came in in their typical swashbuckling fashion. want to say 16, 17, they made a couple of big deals. They paid, I think, a billion for one portfolio and then they were off to the races, right? So $1.8 billion was their bet in sum. And then in the end of 22, they realized, yeah, this one, we got to take the L on this one. So they started selling these properties piecemeal. I think this is a point that we wanted to make, which is a macro Will Krasne (06:56) Sooner or later, starting about real- Hiten Samtani (07:13) decision by one of these giants can be a great micro opportunity for the right company. now, Blackstone's selling this off piecemeal to a bunch of people. Isaac Toledano out of Miami, his BH group just picked up one in Aventura for 75 % haircut. So you can get some really good prices when a giant says, we're out, right? Then they don't really care about the individual 10 million year, 10 million there. Will Krasne (07:35) Yeah, they care about certainty of execution and speed. If you can provide both those things, like, we're not going to fight for the extra 10 million to the guy who has to go raise it all and might have a bunch of contingencies and has for super long diligence and like, can't you get the finance thing? Hiten Samtani (07:48) We just want to be able to tell our investors we're out. That's the main thing here. Will Krasne (07:51) Hey, we made a mistake, we're done. And again, it speaks to, I think we talk about, hey, I'm gobbling all the time. Like, if you're another group that you're not sure if you can raise the next fund, you're not throwing in the towel, you're fighting as hard as you can to keep this mark at a certain level as fake as possible for us. Whereas Blackstone's, honestly, it's a great-looking fundraising. Like, hey, we're not perfect, we made a mistake, but we didn't try to fight it, we didn't waste resources, we didn't waste time, we got out of it. Everything else in the fund is good. Hiten Samtani (08:17) The initial headline was of this one trade that we just talked about, the Aventura one. I saw that deal. The media man inside me said, wait, this is weird. I wouldn't see this one-off transaction by Blackstone. That doesn't make any sense. A couple days later, the Wall Street Journal had that big dive into all of this. Honestly, I would not be surprised if someone at Blackstone fed them the story. ⁓ Just like, let's take the hit in one go, let's just take it on the chin and move on. Will Krasne (08:42) You only want to do one round of layouts, Hiten Samtani (08:43) I want to talk a little bit about a new deal in the works that's quite interesting, some interesting players in there. We're talking about Sonita, which is backed by Mike Semenovsky from Converse and Capital. Semenovsky and Sonita are merging with CNL to build one of the largest senior housing players in the US. Will Krasne (09:01) Mike Simonovsky, former partner and Senator, founded Conversion Capital five, six years ago. They back Quinn Residences, which is one of the largest BTR companies in Southeast. They've backed and structured Industrial REIT, which was formerly Griffin. It got taken private by CenterBridge. Hiten Samtani (09:16) Simanovsky is also a partner in that hotel deal that we're both obsessed with. Yes, he is. The SF, the 3000 Keys or whatever downtown, the two Hiltons. Yes. Simanovsky is the money there. There was a lot of reports that Wyckoff was in the deal. Wyckoff is not in the deal. Our boy Luther from New Bond and Simanovsky, they're the partners on this one. I believe it's set to close pretty soon, so we're going to try to talk about it in more detail. Will Krasne (09:37) That's another one where there's a lot of very clever structuring embedded in there as well. Because remember, structure is alpha. It's not just CIM who says that. And then a couple of years ago, they made a, I think it was a pipe into Sunita Senior Living, which was a publicly traded owner, operator, investor in senior living communities, completely restructured balance sheet. And then now they're buying CNL Healthcare, which is a public non-traded REIT. And they own a bunch of high quality senior housing communities. They're valuing CNL at about 1.8 billion and... Sunita expects to have like a $3 billion enterprise value after this. Hiten Samtani (10:08) It's a pity that we're both wearing, you know, t-shirts. We can't do the asymmetric collar, but I think we should talk about what an asymmetric collar is. As I understand it, there's a different cap on downside and upside. Will Krasne (10:17) you This is like pretty complicated, I'm just a dumb bricks and sticks guy. There's a reference price. The collar is 15 % below the reference price and 30 % above the reference price. Hiten Samtani (10:33) CHP shareholders are favored in this asymmetric color because a, they have limited downside exposure, so only 15 % below the reference price, get to participate in 30 % upside before the color kicks in, and retain more value if Sonita stock performs well before closing. Will Krasne (10:50) I think Sunita ends up owning more of the company depending on where they go. Because if they kite the stock, they're going to own, I think, at the low end 39.5 and at the high end 50%. Sunita is controlling the ship here, to be clear. Mike's going to chair the board. They have control of the board. And the Sunita CEO is going to stay in control. Hiten Samtani (11:12) point out that even though there's a lot of opportunity, a lot of money has been made over the years, it's also, for some of the reasons we mentioned, been a space of lot of turmoil. There's been tons of bankruptcies, restructurings, a lot of public companies were taken private in distressed conditions. There's a lot of financial engineering type of action in the space. Will Krasne (11:32) Again, we talked about how hard it is to operate these things. You can operate them well and still get annihilated if you time the cycle wrong. If there's too much supply, if, God forbid, something like COVID happens and rates go up. Hiten Samtani (11:41) mean, is what happened to Blackstone as well, right? The floating raid reaper got them. Yeah. They loaded up with debt and then they took a hit. Will Krasne (11:47) Yeah, and you just give yourself not a lot of margin for safety in a business where you have humongous fixed costs. This is something where the structure is very clever on the Sunita side. They're going to control the boat here. They're getting bigger at a time when prices are low. that's always fortuitous. Do you want to buy when there's blood in the streets? Right? That's what the Rothschild said. And Blackstone just opened a vein. As a disclosure, Mike Semonowski and I are partners in an unrelated product investment. We want to tell you about the Promote Insider, our premium subscription tier. Lots of spice there. Hiten Samtani (12:28) Seriously, we just published a story looking at the dangers of data center sasbees. Bondholders have no idea who the ultimate tenants are. It's pretty crazy. And it's the kind of wonky insider stuff you degenerates love. Will Krasne (12:43) I was just thinking about it at the gym this morning. It's like the guy in Happy Gilmore who's like circle all good things Block bad energy good like that's exactly what this is. It's oracle spending money or getting money back. We untangle those things ⁓ for Hiten Samtani (12:58) you guys. And we untangle them with experts who really know what they're talking about. Will Krasne (13:01) You had published a great excerpt from one of the promote insiders in the newsletter today. Really good breakdown of how this stuff works. Hiten Samtani (13:09) Thank you, so you can check it out at thepromote.com slash upgrade. Founding memberships are up for grabs for another couple weeks, so get on it. Will Krasne (13:16) $20 a month, you're in a good spot. Also, you get a free two-week trial. So on a risk-adjusted return basis, that puts data centers to shame. And I got to say, I saw Bain Capital's avoiding data centers. It's the first bullish thing I've heard about data centers in a long time. Hiten Samtani (13:29) Ha ha. But this one's in our sweet spot. It's pretty good. There's a quarter billion dollar hole in the Brooklyn skyline and Jonathan Landau has to go fill it real fast. Let's talk about it. Will Krasne (13:42) man, this one's great. walked by it today. I lived three blocks from here for five years. So love it. It is though. This is sort of right on the edge because that Cadman Plaza, you know, the other condo deal that got done on Cadman Plaza did not do so well. Hiten Samtani (13:48) The street's nice. Let's summarize what's going on. Will Krasne (13:59) So the dirt's owned by the Syrian royalty, one of the founding families. The Keris. I guess my question, first of all, is that if this is such a good idea, why aren't they doing it? Hiten Samtani (14:09) funny you say that they are not not doing it. Okay listeners might be a little confused here. So 205 Montague Street this is a site that the Carey family, Joe Carey's Midtown Equities bought in 2010 for 30 odd million. Once they bought it there was speculation that something serious is going to show up here. Right Brooklyn Heights, Tonious neighborhood in the borough just a great great neighborhood to live in. Will Krasne (14:30) and notoriously very, very difficult to build. Hiten Samtani (14:33) So they have this site, if they stitch it together with the neighboring site that they also own, we're talking about a tower north of 500,000 square feet. So there had been not much action on the site for a long time. And then it instrolled Jonathan Landau with his aging rock star main and made something happen. This is in 2024. Landau is a pretty well-known commodity in New York real estate. He used to run Fortis Property Group, which was the Kestenbaum family's vehicle. Mixed record there, I would say, but they've done some major projects. Will Krasne (15:03) Well, what I would say is that he bought great stuff, like the River Park development in Cobble Hill, so not too far from the sites, is phenomenal real estate. I think the execution, your mileage may vary. They gave a couple sites back, but River Park, Five River Park, which they built, turned out really well and I think sold really well. Hiten Samtani (15:21) Yeah, Olympia and Dumbo did incredibly well, I think. Will Krasne (15:24) Again, financially unsure because they had a very high octane land loan, they had a high octane construction loan. Hiten Samtani (15:29) The condo sales went very well. just put Will Krasne (15:31) Condosils went really well. In the movie Highest to Lowest, Spike Lee's new movie, Denzel lives in the penthouse of the Olympia building. It's like a character in the movie. Wake up, y'all, the king's here. Hiten Samtani (15:42) Oh, wow. So Jonathan Landau, former transactional attorney at DLA Piper, stumbles into the principal side through Fortis, meets the Kessenbaums, runs their company for more than a decade. And then in 2022 decides, all right, I'm going to fly my own flag. Starts a project in Miami, a boutique condo there, boutique office there. But the real prize was this 2024 deal that he did with the Carries where he bought into Montague Street. And then he planned to build a 47-story tower. condo tower in Brooklyn Heights. That's pretty massive. Will Krasne (16:14) It's really massive. The only comparable site is, I think, 1 Clinton, which Hudson... David Kramer's Hudson? David Kramer's Hudson did. David Kramer also lives in Brooklyn Heights right around the corner. He does, yeah. And they had the library that they had to build for the Brooklyn Public Library, which I think sort of made the returns diluted because they spent a ton of money doing that and didn't get any revenue from it. So having a prime site in Brooklyn Heights, and especially Brooklyn Heights is like in the zeitgeist right now. Amy Schumer moved there. Paul Rudd lives there. He gives out candy on Halloween. Hiten Samtani (16:20) David Kramer Will Krasne (16:44) Matt Damon lives at the Standish. John Krasinski lives below Matt Damon at the Standish. Yes. So there's a lot of celebrities in Brooklyn Heights. Hiten Samtani (16:51) the Glossier ⁓ founder by something with the few months ago we walked by. Will Krasne (16:55) Yeah, Emily Weiss and Will Gabrick, my high school classmate, bought it for some crazy number, like, north of two thousand, like, low twos a foot for a townhouse that they spent a bunch of money renovating. So pricing's really pushing there. It's as high as almost anywhere on the park. Hiten Samtani (17:10) mid 2Ks of foot, something like that. Will Krasne (17:12) Yeah, and resell trades at one Prospect Park West are like close to three. So this is the time to be building in Brooklyn Heights and Lando's trying to build the biggest and the baddest if he can get there. Hiten Samtani (17:23) If he can get there. this project has seen its fair share of dramas. Let's back up a little bit. The loan on this that Carrie got was from Signature Bank. All right. Signature Bank, RIP. Will Krasne (17:34) stepping into a warm bath until Rialto throws ice cubes in it. Hiten Samtani (17:39) Yeah, and again, we've talked a lot on this podcast and in the newsletter and the promote about how Signature Bank was your best friend, warm and fuzzy feelings for their borrowers. However, when they melted down, FDIC took over, Rialto came in, bought a chunk of their book. Rialto kind of ratcheted up the heat pretty hard on a lot of the borrowers and they're working through a lot of that. Now, a lot of mom and pop sponsors kind of rolled over because they didn't know what to do with this Rialto coming at them. But Rialto also came for Joe Carey and now Joe Carey is not the kind of man to roll over. he fought back on this one. He alleged that Rialto carried out, quote, a sinister veto pocket scheme in which they deliberately slow rolled his extension request. It was in the contract that they would get an extension on this loan, according to Kerry. And Rialto kind of just sat around and didn't let anything happen. Will Krasne (18:28) It's like Rialto is the husband who the wife's trying to say, hey, I'd like a divorce. And he just like covers his ears and goes, la, la, la, la. Hiten Samtani (18:35) That's exactly right. This, by the way, is a pattern with Rialto that's come up in multiple lawsuits. He comes at them with this sinister pocket veto scheme. He fights back, the party settle, and then Landau once again has breathing room. Because obviously, if Rialto foreclosed, there was never going to be a condo here. Will Krasne (18:53) Right, I mean, so the site had quite a life before we even got to this point. And so, you know, this is again a $450 million cap stack. This is not for the faint of heart. Hiten Samtani (19:02) Probably like 500 million or so, yeah. I got some fresh numbers. Will Krasne (19:04) Yeah, something close to that. you do? Okay, I only have the old numbers. Hiten Samtani (19:08) So anyway, with the realtor thing out of the way, Landau is kind of free to go find his financing. And so he lines up one of our marquee names in construction lending. He lines up Banco ZK. Will Krasne (19:20) a new warm bath until it's not. Hiten Samtani (19:22) the little bank that could until it couldn't. So Bank OzK agrees to come in according to our sources. This is speculative, so please don't take this as gospel. But according to our sources, Bank OzK agreed to step up with a $245 million loan. Oh boy. Atlas Capital, which is a partner on 80 Clarkson, the Zeckendorf project that we've talked about, agreed to step up with the preff as well. So he was well on his way until he wasn't. Will Krasne (19:47) And so the Hank OzK drops out. Hiten Samtani (19:49) Right, at some point in this process, Banco ZK got cold feet. One of my sources said, it's a mumdani thing. I don't know if that's just cover or whatever, but Banco ZK said, we're out. So now Landau, who was relying on them for a quarter billion dollar chunk of money has to go and find more money. Will Krasne (20:07) And by the way, before they backed out, in the materials it's saying, you know, this is our preferred equity partner. So it's not as if this cap stack is just filled to the brim. It's already structured. Hiten Samtani (20:19) Yeah. So they had a senior construction loan from them. had Atlas Capital as the pref. OzK stepped out. Landow needed more money. And now we know that Northwind is coming in. Our boy Ran Aliasaf, who we've had on this podcast before. Will Krasne (20:32) He's not going to be the cheapest, but he might be the quickest. Hiten Samtani (20:35) He's not the cheapest, he said that himself. But he's pretty fast and he can close. So, Ranz Northwind is coming in with like a hundred, low hundred million dollar land in pre-dev loan. Will Krasne (20:47) Man, that's a great piece of paper. Hiten Samtani (20:49) Yeah, it's pretty good. then King Street, we've talked about King Street before with the RXR Gemini deal, because they're one of the investors in that venture. King Street's coming in, according to our sources, with a healthy chunk of mezz. Like we're hearing 90 million type of mezz. That is. And apparently it's pretty expensive. Again, speculative here. Will Krasne (21:04) so much mezz my god Right, and then Atlas behind that has 60 million of preff. So you basically have 150 million of highly structured mezzan preff behind a not super cheap senior. Hiten Samtani (21:20) Right, and you're still not done. You still need like a hundred something million to get going. So the carries paid I think 30 million for the site and it seems like they're just rolling that into this deal. Will Krasne (21:25) the carries are rolling in some of their equity. I wonder what they're thinking about all this because they're probably like, could just fund this thing. ⁓ my God. I think it probably says something that guys who are really sharp who have the balance sheet to do this and actually own the land are not the ones stepping up. Yeah. That probably says something. Hiten Samtani (21:36) by selling a beach house and deal? Well, I mean, their basis is so phenomenal, right? Why would they take on all this risk if they can just be a part of something great? Will Krasne (21:52) Exactly. I mean, unless they're thinking that this thing's going to get built and he's going to default. But even then you end up with a weird site where your equity is trapped. Hiten Samtani (21:58) Did you have some rates on the the Mez and Pref by the way? I was told the Mez is between 12 and 15 percent and the Pref is at 18 percent. Oof. Will Krasne (22:06) I didn't see the terms on the paraff, but I saw the terms they were offering their LPs. 10 % paraff, a 40 % promote up to a 2x multiple, and then 60 % over a 2x. Hiten Samtani (22:11) What are we hearing? Quite generous, no? Will Krasne (22:20) Yes. They were looking at like mid-2000s blended sellout, $80 per square foot rents. those are, both of those actually feel very achievable. 80 bucks a foot is what people are getting in like Prospect Heights or Gowanus for new builds. So that actually feels like pretty cheap. Hiten Samtani (22:36) I say this a lot to you, Will, I think in these prime areas, getting the thing funded is the thing. Once you get it funded, a tall condo in Brooklyn Heights, you're going to get some of the best views of the city. You're in a pretty good spot if you can get there. Will Krasne (22:49) No, it's sort of binary. Like you get this thing done or not. It's going to sell, it's going to rent. But again, I say that and then one Clinton like lost a bunch of money directly up the street. Though I think there's some specifics to that building, which probably caused the issue and then the issue with the library as well, which you don't have here. Hiten Samtani (23:04) So filling these holes in the cap stack, feel like is something every developer, big or small, can relate to, right? We spent a whole episode talking about related $25 billion donut in Hudson Yards and how they had to do all kinds of creative structuring to get that one funded. But this applies, you know, even to humble developers doing rinky-dink industrial deals in Western PA, like everyone can feel this. Will Krasne (23:25) Central PA. I feel for John Lando because this is the absolute worst I've been through it. And look, we're in this business because it's hard. No one would be in this business if they weren't sick of the head. the good thing about real estate is there's always someone who wants to do it. Hiten Samtani (23:41) In the spring he was talking, he said, it's a great time to be developing New York City. But let's see if the money lets him do it. Will Krasne (23:49) It's a great time to be doing renderings, but we'll see if you can actually get it built. Reston Town Center, sexiest address in commercial real estate. Hiten Samtani (24:08) You know, I spent three nights there, did I tell you? No, you didn't. This is a couple years ago, so I had a conference. Such an unusual world in of itself. It really was one of those planned complexes and you really feel it as soon as you step in. It feels like the Truman Show. Good morning! Oh, and in case I don't see you, good afternoon, good evening and good night. Will Krasne (24:28) It was the brainchild of one of the underrated, most impactful people in real estate over the last 50 years, Mort Zuckerman, over at Boston Properties. Hiten Samtani (24:36) You think he's underrated? feel like Zuckerman's considered a goat. Will Krasne (24:39) The youth today don't consider him in the same vein as Sam Zell or one of the other guys. And Lord Zuckerman did just as much. So BXP, again, Boston Properties. I'm going to call them Boston Properties. So their whole thing, again, the name was we're only going to develop in certain cities where it's really hard to develop because we're going to be the best at it. We can handle the complexity. We have the balance sheet. We can do it. And it's just ironic that Reston, this ex-serv of DC, Hiten Samtani (24:50) We're going to call them Boston properties. Will Krasne (25:06) ends up being one of the places where they stick their flag. And so they've been in this since the 80s. Hiten Samtani (25:10) Can we talk for second about the scale of the project? Will Krasne (25:12) It's just massive. 40 years, you're like, wow, that must be done. They're half done. Hiten Samtani (25:17) It's absolutely messed up. Will Krasne (25:20) They've delivered five million square feet of apartments, office, retail, everything. And then another four million square feet, I guess they can add onto it in the next four years, unless they sell it all. Hiten Samtani (25:32) talk about sort of planned neighborhoods like Columbus Circle, Hudson Yards, etc. They're still plugging into the most dynamic city in the world. They're still plugging into New York. Reston, they kind of have to work this magic from nothing, right? So you go there, there's nothing and then there's Reston. And there's all these happy hours and the chatter. It was like sociologically very interesting to go there. Will Krasne (25:54) Well, now it's one of the sort of your very close to data center alley. Amazon has a huge presence there. Data centers going up left and right now people fighting against data centers left and right. There are areas which when I would go play baseball, there was a youth in the early 2000s. What was that word? Excuse me, your honor. Not a lot there. And now it's really, really dense, which speaks to why we're talking about this. BXP sold two major apartments in Reston Town Center for like a quarter billion dollars. Hiten Samtani (26:09) You Imagine the basis there. this is one of the, this is a record deal for the area for sure, but this is just a massive deal overall. Will Krasne (26:28) What they're doing though is they're doing this to refocus on their core, sort of the back to basics, massive, super tall, super complex developments in Manhattan. Hiten Samtani (26:39) like 343 Madison, which we've talked about. BXP listed, it's a building called Signature. It's a multifamily building, about 500 units. And they wanted to get pricing, they were like teasing pricing of 240 million, which comes to about $470,000 a unit. That's a big number. So the buyers that came in were Sterling, which is out of New York, and Denver-based Simpson Housing. And it seems like they're paying in line with that guidance, so pretty damn good. Will Krasne (26:41) Exactly. pretty good execution and I think it's a bet too that this market's gonna continue to run. And it's one of these plays which I think a lot of people are talking themselves into which is actually kind of smart which is we're gonna buy something new, we're maybe not gonna have the juiciest yield day one, but we're gonna be cheaper than whatever the supply is that comes behind it. So if the market continues to move, we're gonna be on the shoulders of the next deals that come behind it and we're gonna have a new asset that's gonna be easier to run, not a ton of RNM and we know it's gonna cash flow from the jump. From that lens, it kind of makes sense. From the lens of $470,000 for Reston, which is just where you would go to buy a Subaru. Sort of a little stagger. Hiten Samtani (27:43) One point I want to make is about the, if you control basically all the inventory in that area, you're the price setter, right? So the last record was also 2022, Boston properties again, rest in town center. They sold out to Carmel properties for 400, just under 400,000 units. Will Krasne (28:00) That's still a pretty big number. And Carmel is a huge national firm, like very sharp, big portfolio. So the fact that they're paying big numbers sort of, again, and this now completely justifies it. So that's what almost half a billion dollars of apartment complexes at Reston Town Center that can go to fund superstructure of 343 Madison. Hiten Samtani (28:20) And that's just the start. the end of 2027, think BXP, Boston Properties, wants to sell close to $2 billion worth of assets. Will Krasne (28:27) Right. I think they have nine currently under contract for like $400 million. Hiten Samtani (28:31) Wow, and then there's another 10 or so on the market. Will Krasne (28:33) I didn't even know they owned that much stuff. Hiten Samtani (28:35) Is there something about the way that REITs are structured that they cannot go and fund this stuff any other way? Will Krasne (28:42) The game is really about are you trading above NEV or below NEV? And you think of it that way. If we're trading above NEV, you want to issue stock, and then that's very creative. You can buy anything, and it's a creative. And if you're below NEV, you don't want to ever issue stock because it's just completely dilutive. So sell stuff down, buy back your own stock, or do your own project. Hiten Samtani (29:01) That's been the broader landscape in the REIT world for a while, right? Stuff's trading well below NAV. Vornado Steve Roth is crying about that every earnings call. Will Krasne (29:10) Steve Roth, if you think this company is so cheap, go raise the money and take it private. Period, full stop, Mark Holliday, same thing. Hiten Samtani (29:18) Run and hide, Will. Run and hide. Go run and hide. Will Krasne (29:21) Yeah, it's indicative of where the market's going, where these clean assets with good stories are trading tight. And they're not always the sexiest assets, the ones that people historically would say, yeah, that's worth the most. even on a per foot basis, I don't have the number in front of me, but this is probably significantly more expensive per foot than a bunch of Manhattan offices traded for. Hiten Samtani (29:41) Sounds about right. then Simpson, mean, Simpson's a pretty interesting buyer as well. They're massive. have 23,000 multifamily units across the country. So, Nonsome Mickey Masters here. Will Krasne (29:51) Well that's the other thing too about multifamilies that you have these groups which like no one's ever heard of like how many people listen to this podcast have heard of Simpson housing? ⁓ Hiten Samtani (29:58) And then you go check animate C lists and they're all there. Will Krasne (30:01) Yeah. And it's just, if you buy a couple of projects a year over a long period of time, that really adds up. It doesn't need to be the splashiest. It just needs to be cash flowing. Hiten Samtani (30:10) You know what I'm curious about with BXP here? So they're selling off these assets. They're going to continue probably developing out this rest in town center. What did we say? What 4 million square feet plan. So they're just going to keep building this thing and then selling it off piecemeal when they want to go build some more Manhattan skyscrapers. Will Krasne (30:20) Formally. think of it this way. What's their book value on this stuff that they build? Because again, the land they've owned forever. Yeah. know, it's nothing. Whatever you sell, it's a huge mark to market gain. You're building things that are new and liquid. Hiten Samtani (30:38) If you can build quality primo class A++ office in Manhattan right now, you're building into a pretty incredible market, right? This is net absorption is at its highest it's been in 25 years. Tenants are paying record sums for the right buildings. And yeah, if you can get something built there and Boston Properties knows how to build stuff, you could be in a pretty strong position. Will Krasne (31:00) This cap stack I'm not worried about, unlike 205 Montague. Hiten Samtani (31:12) That's it for the Promote Podcast this week. Senior Housing is giving the grizzled heads at Blackstone a run for their money. A quarter billion dollar hole in a Brooklyn cap stack is fodder for big drama. And BXP is selling legacy assets to build on its legacy of Skyline shaping assets. Will Krasne (31:28) It's Boston properties. It's a shame when the consultants get to a beautiful name. It's like Hiten Samtani (31:32) Why do that? I hate it. Like, just own it, Will Krasne (31:36) what Burt Cooper said about London Fog. It's a great name. Hiten Samtani (31:40) We'll be back next week with more CRE insider goodness as always. Will Krasne (31:44) Hit us up at partnerships at thepromote.com for advertising. We haven't seen a new review in a bit, so please go write us one. I check every single day. Hiten Samtani (31:51) maybe twice a day. Please do that and then check out the Promote Insider at thepromote.com slash upgrade to level up. That's thepromote.com slash upgrade. We will see you next week. Well, thank you and good luck in New York. Ciao. Will Krasne (32:02) Thank you.