Latest / The Promote Podcast / Only Mortals: The Reichmanns, Pt. III

Transcript

Only Mortals: The Reichmanns, Pt. III · The Promote Podcast

• Hiten Samtani (00:05) An evil plexus of slums hides human creeping things. Will Krasne (00:11) Where filthy men and women live on panorts of gin. Hiten Samtani (00:17) Where collars and clean shirts are decencies unknown. Will Krasne (00:24) And where Paul Reichmann sought to build a new financial utopia. Hiten Samtani (00:29) Dream no small dreams. Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani. Will Krasne (00:46) And I'm Will Krasne Hiten Samtani (00:49) Today we conclude our trilogy on the Reichmanns, arguably the most daring, brilliant, and what's the opposite of risk averse? Will Krasne (00:56) Captains of the Go team. Hiten Samtani (00:58) Family and commercial real estate history. A big thank you to our sponsors for supporting this endeavor. Real Will Krasne (01:03) Property captive, the first group captive insurance for mid-market owners who the Reichmanns weren't, and then were. Hiten Samtani (01:09) They kinda were in the end. Yes. Loan boss, your one stop solution for CRE debt management? Will Krasne (01:15) Bravo Capital, a leading HUD and Bridgelender. Hiten Samtani (01:18) We've been on a whirlwind journey. We started off at a fateful bar mitzvah in Biled, Hungary. We traversed through the currency bazaars of Tangier Will Krasne (01:35) Cheers. Hiten Samtani (01:36) and the teething grounds of Toronto before ascending the apex mountain of Manhattan. The Reichmanns, as you said, they're feeling it more than any other family has felt it in history. They're really at the top of everything right now. They have made what is probably the best acquisition of all time in the Euros portfolio. They've developed what is probably one of the most complex and successful projects of all time in the World Financial Center. They're also in the middle of their corporate rating adventures all over the place. So they're really up there. Will Krasne (02:07) It's important to note as well that we've started to see cracks in the facade. So while they are simultaneously the most respected name in global real estate, in frankly, investing, period, but at this time they're also hemorrhaging cash into Gulf Canada, Campo, the other opcos, and most importantly, the office market in North America has really started to soften. And so we're seeing the cash machines. That they had at the Euros portfolio, First Canadian place, all of these other deals that they've done, those are starting to really slow down because Hiten Samtani (02:44) The wave has crescendoed, right? They bought Euris in in the late seventies. By the late eighties that portfolio has ten X. Will Krasne (02:50) They've barred against it to the hilt and the cash flow that went to service it has started to collapse. And again, as we've seen recently with Office, it's really expensive to re-tenant. Multifamily, you can drop your own two hundred bucks and get apps the next day. That's not how this works. So while this is happening, they are about to take on the single largest commercial development in the history of the world. Hiten Samtani (03:12) Fair way to put it. Will Krasne (03:12) Outside of like Tinocticland with Aztecs. Hiten Samtani (03:15) So what are we talking about? The Isle of Dogs. Dags. Dags. Dags. Will Krasne (03:18) What? Yeah. Hiten Samtani (03:20) dogs. Before New York took that position, London was the financial capital of the world. And at this time they were still one of the most dominant forces in high finance. But it's not really London. It's this tiny little nebulous thing inside London called the city. The City of London. Will Krasne (03:37) This is where all of the major investment banks are. The magic circle is the law firms. It's really concentrated in one area. In New York, when you say you work on Wall Street, you work in Midtown. But in London, if you work in the city, you're in the city. Hiten Samtani (03:51) And it has this very unique culture because of the density and we love these esoteric associations. There's one called the City Corporation, and they're the shot callers in that space. Will Krasne (04:02) To bring it back here though, Isle of Dogs is far away. It is not in the city. Hiten Samtani (04:07) seen the movie Green Street Hooligans? Of course. West Ham United, they have this serious rivalry with Millwall, where this is Millwall. Will Krasne (04:15) GG! Hiten Samtani (04:18) YEAKES! The upper crust would not be caught dead in this neighborhood, is the point. Paul Reichman had some exposure to the English property market through Olympia New York's interest in Trizek, which also controlled a company called English Property. And he wasn't very impressed of England. He said, the work habits were poor, the level of interest low. And this is important for our listeners. Will is like a hardcore wife guy, and so am I now, but I've had previous relationships where There's something that was not quite right from the get-go, and I still stuck around for a while, maybe to my detriment. And that's what this feels like a little bit to me. Will Krasne (04:56) It does. There are these deals, and it happens to everybody where you just know it something's off and you can't get out of it. There's sort of always a reason to keep going. And frankly, one of the reasons here is the fact that this was so far away and that it was such a decrepit area because the government gave away the farm to try to get people to build here. They created a land development company, they gave it urban enterprise status. Hiten Samtani (05:23) What does that mean for our stateside listeners? Will Krasne (05:25) It's a big deal. It's basically a 10 year rates holiday, 100% capital allowance on buildings, exemption from development land tax, and very, very simple planning, which I think is almost most important. The land is not just free, almost kind of getting paid to do it. And that's just the carrot, right? That's what gets people interested. The problem though, as we said, it's three miles away, but it might as well be a lifetime. And that's because London, which has phenomenal public transit, of course, all the cabbies have the knowledge. Hiten Samtani (05:53) One of my favorite pieces of all time is Peace About the Knowledge, I'll send it to you. Will Krasne (05:57) There's no easy way to get there. So you have this area that's not connected, but it's got free land. Hiten Samtani (06:02) All this to say that people who are very familiar with this market, namely English property developers, want nothing to do with it. So as always, it takes an American to really bring the fire here. And in this we have our discount Bill Zeckendorf almost. Will Krasne (06:15) We're about to go through a series of names which are phenomenal. Hiten Samtani (06:18) And we will put these in the show notes, I promise you. So if you get lost, never fear, we have your back. Will Krasne (06:28) So Credit Suite's First Boston had a London office, and Michael von Klemm, who is the chair, wanted to convert the Isle of Dogs into back office, Shades of Dumbo, where you can go across the river, get much cheaper space, but you're still connected. This was not connected. So Michael von Klem, though, he's the chair of CSFB. He's got a lot of things to do. He's gotta find a property guy who knows what's up here. And he goes to G Ware Travelstead. I can give you one guess what the state he's from. Hiten Samtani (07:01) It's gotta be Kentucky, man. He has a dream. He said, let's make a real run at this. So he goes to First Boston and Morgan Stanley and he puts together a consortium. Structured is as follows. They will sign a master lease agreement, but they need him to go and pre-lease some space to do a little bit of a proof of concept. And he's unable to do that. Very tough sell, even at this rate. Will Krasne (07:26) all comes down to the transit because you can't get the tenants without the transit and transit is unbelievably expensive to spec. Hiten Samtani (07:34) I don't think it's just transit. It is one thing to be connected. That's a very core part of this. England, unlike America, is a country of class. And class comes with certain constraints. You've got to be in the right place. It's much more important to the English to commute into the city than it is for Americans to go to a specific place. There is this whole ethos of having to go to the city because it is the proper thing to do. Will Krasne (07:59) class of clientel Hiten Samtani (08:01) It becomes a serious problem, actually. Will Krasne (08:02) So after our good friend G Ware, man, what a legend, can't pull it off, who else is out there who has the stones, the balance sheet, and the expertise to do this? Hiten Samtani (08:14) One name. Paul Reichmann. Olympia in York comes and takes a look at this. Maggie Thatcher, the aforementioned Iron Lady, has won a third term and she is anxious to get this built. That really cements the legacy. Maggie's like, You have until July 17th of 1987. If you can't get me a deal, then you're out. So he gets desperate. First Boston on July 1st, which is Canada Day, incidentally. Tells Paul Reichmann, Let's meet up. And so Paul calls his team and says, We got a fly to London tonight. More on that right after this. So, Will, you violate any debt covenants recently? Will Krasne (09:02) So funny you should ask. I have been in technical default recently. I mean who among us? Right. But not since Q4. Ooh. And that's not because I paid off a loan. It's because that's when I started using Loan Boss. Hiten Samtani (09:14) I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that. Will Krasne (09:20) Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cash flow forecasting, impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve and then it's always vertical and you gotta alt HVT to have it go horizontal, make sure the index match works, like ridiculous. Hiten Samtani (09:44) They've just got it sorted here for Will Krasne (09:46) Much better. So thank you, Loan Boss. Hiten Samtani (09:48) Listeners, check them out at loneboss.com, that's loneboss.com, and tell them the promote sent you. Will Krasne (10:07) Me Iron Lady sends her guy Young Hiten Samtani (10:09) Lord Young. Will Krasne (10:12) To feel Paul out and like most people who interact with Paul Reichmann, comes back with rave reviews. Just like somebody opening on the West End. Hiten Samtani (10:21) Lord Young says, I was staggered that he had both the confidence and the resources to do it. So they've convinced Maggie Thatcher, and this plan is this makes World Financial Center look like a Mickey Mouse project. Will Krasne (10:35) It's more than twice as big. It's twenty-four buildings, twelve million square feet, and they got an incredible deal on the land. Hiten Samtani (10:45) two hundred year lease at four hundred thousand quid an acre. And this is at a time when the going rate was of one million quid an acre, so that's a giant, giant discount. Will Krasne (10:55) In addition to all of the tax incentives, planning incentives, all Hiten Samtani (10:59) That even with all that, within Olympia and York, there's some anxiety about this deal. Yeah. Will Krasne (11:05) So you've got Albert, who's the guy who's gotta go build it. He's got some reservations. Keith Roberts doesn't love it. Hiten Samtani (11:11) One of their most senior executives. Will Krasne (11:13) Importantly, they're also going through a shift in which Renee, the backbone of the entire family, is fading and heading towards the end of her life. Hiten Samtani (11:22) The matriarch. In episode one of this trilogy, we really talk about the kind of respect that she commanded from her sons. So if she had put the kibosh on this, it wouldn't have happened. So there's only Paul then, and you know what Paul wants to do here. Will Krasne (11:36) The only thing on the mind of the shark is eat. Hiten Samtani (11:40) So just like the Euris acquisition which made him, this deal was also signed on Shabbos. Will Krasne (11:47) That means I don't work, I don't handle money, I don't turn on the oven, and I sure as shit don't fucking Hiten Samtani (11:51) Roll Paul is dark. He's unreachable. And one of his lieutenants does the deal. The contrast here, though, is the Euris deal put the Reichmanns on the map globally. In this case, though, the Reichmanns have reached such a stature that their association with this project is hailed as the revival energy for it. It was a complete shift in those 15 years. Will Krasne (12:13) One thing to note too, though, is that with Euris and with the World Financial Center, they both were able to find the lever that made the deal work, particularly at World Financial Center showing up with the bond repayment schedule. Hey, we know what your pressure point is. We can hit it and really make the deal here. This is the first time that they're really at the mercy of another entity. Rich as they are, they can't build a new line out there. The government has to help. And so For the first time that dynamic is shifted where someone has a pressure point on them and buying into the distress, looking through that, looking through a cycle, all those things. That is not the case here. Yeah. They're delivering into a massive supply glut. So it's not a Eurus situation where they are buying at the nader. This is on the way down because as this site was sort of coming through the ether, the city doesn't take this sitting down. Hiten Samtani (13:09) Yeah. They're going to rise up against the rebels. Will Krasne (13:12) There's a huge wave of deregulation, both on sort of the financial side, which unleashed demand for office, and then also on the planning side. And there's new towers built basically every day for six years. Something like forty plus million square feet of new office. Hiten Samtani (13:27) And so much of this is a defense mechanism against what the Canary Wharf project is going to be. Will Krasne (13:32) Companies with the 80s deregulation globally are expanding. They want new, they want state of the art. It's harder to do that in such a space-constrained area like the city. And Canary Wharf was sort of a blank sheet of paper. And so a way to front run that is say you don't have to go out there. You don't have to wait for this train line to get built. You can just do it right here. As good a project as World Financial Center is, as good a project as First Canadian Place is, at the end of the day, the true non-commodity product in office or any other asset class. It's really, really small. And I'll tell you, Canary Wharf in it, as smart as Paul Reichman is, as good a builder as Albert Reichman is, they are not immune to the laws of supply and demand. And there is a ton of supply. Hiten Samtani (14:19) Did this not remind you so much of Hudson Yards and how much of a role the MTA played in the eventual success of that project? Because without the seven line, there ain't no Hudson Yards. Yeah. There ain't no tripling in values or anything that we've seen in the last five years. The seven trains extension and then the city's willingness to give them another two billion in tax breaks and whatnot is really the thing that this all rests on. That's the wild card here. The other thing, we should read this line for the tape just because of how devastating it is. In the Euris acquisition, you had talked about you can't change a building's location. It sounds like a very simple throwaway line, but it really is the core of this. Here, Paul never understood one thing about Canary Wharf. It's in the wrong place. That's what one of his advisors later said to Tony Bianco. And I think being from the outside, he just did not get the culture that you're not building in prime Manhattan, so to speak. You're really in the boonies here. The initial contract had this clause that the Reichmanns would be entitled to damages if the government didn't make good on their transit funding commitments. Maggie Thatcher reportedly was scanning this document. That's how invested she was, and she took that out, and that proved very consequential in the long run. Sharple Will Krasne (15:36) You know when the state does everything for it'll soon take everything from you. We keep talking about the transit. Here's the situation. Olympia New York wanted to build its own dedicated line out there, and of course the city goes, No, it's gotta be for everybody. It was expected to cost something like two billion dollars, ends up being, you know, almost a hundred percent higher. Hiten Samtani (15:56) Transit in a nutshell. Will Krasne (15:57) And the deal that the Reichmen strike is that they're gonna be on the hook for four hundred million and it's the first four hundred million. The government's line, very smart by the government, is this is gonna make your property value explode. So you've got to pay for it first. The key is they have to be first money in. And if they don't fund, the project doesn't work. Hiten Samtani (16:18) Can we just step back and realize how crazy that is? When you walk around Midtown, you'll see these public plazas and say paid for by Vornado Realty Trust or whatever. But it's just this little awning and whatnot. In this case, they're actually funding the frickin' transit line. Will Krasne (16:32) Can't really borrow against that. It's gotta be like Randy Ma says. Straight K Hiten Samtani (16:37) We should say the bravado at this point is at its very peak. Paul Reichmann says that we're gonna fund this thing through our cash flow as in no construction loan. Will Krasne (16:46) Of course, as everyone knows, the Reichmanns couldn't fund the first payment of the Julie Line extension and someone described it as like choking to death on a crumb. Hiten Samtani (16:58) Ooh, that's so vivid. Will Krasne (17:00) They don't fund this line, doesn't get built, and it's really a doom cycle. Tenants aren't gonna sign without the link on the tube. The city is terrified of losing tenants, so they're building like crazy. And the tube lick can't proceed without the Reichman money, but the Reichman money is tied up in billions of dollars and opcos, hemorrhaging cash on Robert Campo of all people. Hiten Samtani (17:23) Let's talk leasing for a second. If you remember, the Amex deal at World Financial Center is the thing that really made them there, right? In this case, they needed one of those tenants. They needed the English equivalent. They're in talks with Midland Bank, which is a major UK bank. Midland Bank is willing to anchor an entire tower and then half of another, very close to the finish line. Paul Reichman refuses to budge on price. Midland pulls out. And that makes all the difference in the world. Because again, as you've said in the previous episodes, The few dollars here and there didn't really matter. It's all about the momentum showing that you're able to create something here. And he blew it. He completely blew it and he acknowledged later that he blew it on that deal. Will Krasne (18:02) Stats on it. We talked about this wave of supply. Rents in the city were about 70 pounds. I still don't understand like a pound versus a quid. Is it the same thing? I guess Hiten Samtani (18:11) It's the same thing. Will Krasne (18:12) all right. So 70 quid per foot. Hiten Samtani (18:15) You can say pound, quit, or sterling. Okay, or sterling is just for fun. Yeah. Will Krasne (18:19) 70 pounds a foot to under 35 a foot by 1992. It's half a decade, rents were down 50%. Office vacancy went from 3%, 4%-ish to 20. So you lose Midland and then you ain't getting anybody else. Hiten Samtani (18:34) So when one project goes south, worst case scenario you can typically walk away from it and say, that was the brakes. But in this case, the Reichmanns had set themselves up not to be able to do that, and more on that right after this. Okay, I'm here with Aaron Krowitz from Bravo Capital. Aaron, you've done two and a half billion dollars or so of deals so far. How are you thinking about scale going forward? Will Krasne (19:02) There's a divergence between optimizing Hiten Samtani (19:05) Optimal Will Krasne (19:05) for scale and optimizing for quality. And when you're running a debt fund, you have to pick. You have to say, Am I really fee driven and do I want to maximize how much I could put out? And the other business model is what we've chosen is slow and steady. Do we want the reputation to proceed ourselves? Investor returns, that's more important for us than volume. If you look at some of the REITs, they were forced to deploy in the realm of two to eight billion a month. First they AUM gobbled, right, as your sweatshirt says, but then they were forced to like regurgitate that AUM more rapidly than they really could, and force them to pick terrible deals. Their returns are negative to just go for scale, for scale's sake. That's a short lived business model. Hiten Samtani (19:51) Thank you, Aaron, and where can people find you? Will Krasne (19:53) Find us at BravoCapital.com Hiten Samtani (20:06) Okay, so it's important now to talk about how the Reichman Empire was set up. They are signing corporate guarantees for these projects. They're backing up these projects with the entire weight of the Reichman Empire. That's what gave the lenders confidence for them to write pretty lax KYC stipulations into these things. Will Krasne (20:30) Yeah, the whole point is that no one lender knew the full extent of the loans or how much leverage was in the empire. Yeah. And it's just they're the men with deep pockets. Hiten Samtani (20:41) They're the men with deep pockets, they are banking quite literally on their reputations here. Yeah, Paul Reifman, the Reifemans, they're good for the money. They have X project, Y project, Z project, but the lenders on each of those projects is thinking the same thing, right? So eventually there's putting like immense pressure on the whole operation. Will Krasne (20:58) It's like how we've seen recently with multifamily syndicators, where, you know, that same net worth can guarantee a whole lot of loans. Hiten Samtani (21:06) At the same time, we've mentioned their philanthropy so many times through this trilogy. Importantly, unlike some of the grand old families, they weren't creating endowments. So they weren't creating these self-perpetuating vehicles which would invest proceeds into causes, smartly take that money, do it again, again. They were essentially opening those very deep pockets and just handing money out. Will Krasne (21:26) Money, money, money. Trust. If you're this wealthy generally, you have some sort of foundation where you seed it with a certain amount of assets, generally appreciated assets for tax purposes. Exactly. And that pool of money generates a return, which then is invested. So if you have a foundation, it's invested in bonds, stocks, real estate, what have you, and Hiten Samtani (21:48) The children's investment fund, great example. Will Krasne (21:50) No, but I think in the US there's a certain level you have to distribute every year. So basically, like that's your bogey, try to make more than that, whatever. And they weren't doing that. They were just cutting checks. And so what that meant is that their available cash was always subject to their philanthropy. And it wasn't as if we gave this once in a very flush period, we got a big tax break, and then the money comes out of there. We're not on the hook for it. The foundation's on the hook for it. They were just on the hook for it. This is part and parcel of what made them great. The philanthropy and the faith and the religion is Hiten Samtani (22:20) Just inextricable from the Reichmann story. Will Krasne (22:23) It absolutely is. Like they're men of destiny. We are destined for great things and we're destined not only to have financial success for us, but to bring along all our people. Even in this time, you know, when you might say, Maybe we should be conserving a little bit of cash. They weren't. They were continuing to support their people, not just in the US, but in the carcass of the Soviet Union. Hiten Samtani (22:45) It was the guys sitting in a room, signing checks, handing out cash. It was very high touch, as they say nowadays. And so the reputation at this point has compounded to a level that they cannot pull back. How can you pull back? You're the guy sitting in the room. Will Krasne (23:00) I can't even fathom it. At this point, too, what you're seeing is there's a lot of warning lights going off. As Hemingway said, how do you go bankrupt? Slowly than all at once. And that's really the case here. At the beginning, their reputation is able to save them. So even in the late 80s, as the cash crunch is coming and they're putting money in the Canary Wharf, they get a $500 million loan in 1990, but it's at a higher rate. It's more expensive. They start selling off assets. Hiten Samtani (23:26) But if you zoomed out a little bit, you could start seeing this this weaken a little bit the layoffs. But lest you start feeling sorry for the Rikmans at this point, they're still doing their thing, dude. They made a run at the Sears Tower in nineteen eighty nine. Will Krasne (23:39) The only thing on the mind of the shark is to eat. But this is one of these things where who talks about this really well? Francis Greenberger talks about this when he's doing co-op conversions in New York, and he starts to sense that the market has shifted. He goes to his lenders and says, We're having problems. And they're like, What are you talking about? You're current on everything. He's no, no, no, no, no. This is coming. I'm trying to get ahead of this. Let's figure out a way to like restructure prior to there being issues. I'm not in public equities. I'm not a currency trader. I'm not any of those things. But you read the books and you listen to Paul Tudor Jones and all these guys and it's your first loss and your best loss. They're doing the stuff on the margins. Okay, we'll figure this out. It'll come back around. Hiten Samtani (24:17) You ever dated a crazy woman? Well Will Krasne (24:19) professional baseball player. What do you think? Hiten Samtani (24:22) There are some relationships you just can't quit, right? No matter it's like the red flags are right there on the forehead, but you could just can't quit them. Bobby Campo is that relationship for the Reichmanns. It's it's mad. Bobby Kempo was the original longevity guy. He used to apparently get injections of sheep brain to to keep him going. And one of his bankers, one of his core guys, described him as quote, a living water torture. Will Krasne (24:47) Yeah. Hiten Samtani (24:48) So that being said, take us through what happened with Kempo. By the way. Will Krasne (24:52) Everyone go read Going for Broke about Robert Campo. One of the most crazy books I've ever read. But he, with essentially no money, buys Allied and then Federated Department stores two years apart, wildly overpays, goes bankrupt, an Ottawa home builder, real estate developer, not in the Reichmann's league. But he does own some nice stuff. And so they were big shareholders in his public company. And then they loan him a bunch of money as part of these retail buyouts. But it's secured by I think seven office buildings he's got in Canada. And they're like, that's money good. Like we're we're all right. And of course, he defaults on those. And they just pour good money into bad after bad because that'll help it get fixed. Initially they backed him like 200 million or 250 million, something like that. Or Hiten Samtani (25:36) Balloon to what half a billion at some point? Will Krasne (25:38) I think it was close to 700. So that's $500 million just sort of gone. This is right as all of the stuff at Canary Warfare is happening too. And that Could have funded the first part of the Jubilee Line extension and instead it was sort of torched at the altar of Robert Campo. Hiten Samtani (25:54) We mentioned Kempo, the we mention the philanthropic obligations they have. We mention the slowing leasing across all their markets. This is death by a thousand floods, essentially. Not even just cuts. It's bad. If he had leasing momentum in Canary Wharf, he would have been fine. If they had the transit funding come through, they would have been fine. If the government had still been on their side, they would have been fine. But in nineteen ninety, Paul Reifman goes hat in hand or should I say fedora in hand for a government bailout, but there's no Maggie Thatcher anymore at Ten Downing. It's John Major. And he has no attachment to this project or to Paul, so he says no dice. Will Krasne (26:34) And we'll get into the links they went to to try to salvage Canary Wharf right after this. Hiten Samtani (26:52) Well what if I told you insurance could become an asset instead of just an expense? Will Krasne (26:56) I'd say you're trying to sell me something, but also I'm interested. Hiten Samtani (26:59) Fair. Here's the math. You spend two million on insurance annually, loss ratio is well under thirty percent. Over five years that's about ten million out the door, zero return. Will Krasne (27:09) Painful, but accurate. Hiten Samtani (27:11) What if 7 million of that built up in reserves that you actually owned? Will Krasne (27:14) That's pretty interesting. Tell me more. Hiten Samtani (27:16) Real property captive built specifically for scattered site GPs. Top carriers issue policies for lender compliance, reserves stay in your account, and after a few clean years, you're converting spend into equity. Will Krasne (27:27) I like this because that's what the big boys do. Hiten Samtani (27:29) Exactly, and now it's accessible for mid-market drivers like yourselves too. Check out the platform at rpcaptive.com. That's rpcaptive.com, and tell them the promote send you. Will Krasne (27:47) So Hitan, how do you finance real estate? You think it's mostly, you know, bank loans with term, it's asset backed securities. Hiten Samtani (27:56) What are you talking about? I've got a little bit of game. I'll probably go with taste. I'll get some E B five. Maybe sign some PGs here and there. Will Krasne (28:02) How about ninety day commercial paper? That you have to roll every quarter. Hiten Samtani (28:07) Just how do you do that on a long term development asset? Hoop. Will Krasne (28:11) Grease that, that's insane. Hiten Samtani (28:13) I don't even understand structurally how that works. Will Krasne (28:16) Some these are nuts. So I don't even know what this means. These are just words. I'm this is by the Pretend I'm I'm Mark Wahlberg and the Gambler when he's giving a lecture and you can tell that he doesn't know what the actual lecture is and he's just like memorized the script phonetically. So there's a 1989 800 million 7.75% euro bond on World Financial Center Tower B via Nomura with yen equivalent principal formula. What? Hiten Samtani (28:49) Sounds like it didn't work out. Will Krasne (28:50) And that's really the end of it because commercial paper basically depends on confidence, right? People are comp have to be confident that you are good for the money to roll your paper because you have to do it so often. Hiten Samtani (29:00) So nineteen eighty-nine, they've got this fancy yen denominated principle formula, whatever it is. In nineteen ninety, a momentous event, Renee Reichmann passes. Paul goes to Toronto, he sits Shiva for her, and then he comes back to London. And the most urgent problem at hand is that he needs to pre lease eight hundred thousand square feet for Morgan and Credit Suisse to lock in their commitment for that one million square feet that we talked about. It's a very, very precarious situation. Will Krasne (29:29) The same time at the end of 1991, as they're trying to pre-lease the space, they're forced to admit they can't roll the paper. They don't have the money. Yeah. And by Q1, that market's done. That source of funding that's completely shut off to them. And that basically is it, kind of. Paul was forced to resign in March of ninety two. In May of ninety two, a UK court ordered Olympia New York to pay $240 million to Morgan Stanley in a collateral hedging dispute. And that's just a massive gut punch. That's really all she wrote. Olympia New York files in Toronto and New York. Hiten Samtani (30:02) When you say files, you mean chapter eleven? Will Krasne (30:04) I forget what chapter, but they filed. They filed. Hiten Samtani (30:07) Bankruptcy. Will Krasne (30:08) Yeah. And Canary Wharf goes into administration. So phase one actually delivers, but it's only 50% leased, which means it's cash flow negative. It's important to note to your spiel rant earlier about how the British market is very parochial and different than the US, almost none of the tenants are British. Hiten Samtani (30:25) British. And that's very important because if any future concessions are to be had from the government, you can't really make the pitch that this is saving British industry and innovation. These are all out of towners. Who cares about them? Will Krasne (30:37) So what do we have left here? We've got the company just completely taken apart. Hiten Samtani (30:41) I mean, this is sad, dude. What a wild ride in such a short time frame. It is nineteen seventy seven when they buy the US portfolio, their first deal in New York. It is what, early nineteen nineties right now? Will Krasne (30:53) It's nineteen ninety two. We're watching Dan O'Brien Barcelona Olympics commercials. Hiten Samtani (30:58) The world's greatest athlete, Dan or Dave. As we said, this wasn't a normal setup. This wasn't a project you could walk away from, take a black eye, go do something else, go do something in another market. The entire empire starts imploding. Will Krasne (31:20) Yeah. Just to give you the scale of the borrowing, it takes 400 bankers from 91 banks to restructure more than 12 billion in debt. Hiten Samtani (31:33) Whereas PJT partners when you need this is the kind of thing they were born for. Will Krasne (31:36) I think back to what happened with Rupert Murdoch where he had to restructure everything and he came within a whisper of losing it all. And I think it was restructuring like two billion of debt. Hiten Samtani (31:45) We sucked. Will Krasne (31:47) The scale of this again, this is like 1992 dollars, is just staggering and speaks to sort of the power of their mystique to get commercial funding for real estate, which is insane. Yeah. And this again, this is not a massive institutional company. This is just a family. There's no investors, there's no LPs, there's no fee revenue coming in. Hiten Samtani (32:04) When the bankers and the creditors start unwinding this empire, they realize, what were we lending to exactly? Will Krasne (32:11) Yeah. 'Cause what we were lending to was something somebody else was lending to as well. So who really had the priority here? By the early mid nineties, this thing is over. That's not the end though. Hiten Samtani (32:28) It isn't. It never is. We just never gonna have a family like this again. And it it makes me sad. Will Krasne (32:34) It's a different time, it's a different world. Hiten Samtani (32:37) But they didn't leave behind nothing. The ashes of Olympia in York created other great things. Will Krasne (32:44) I'm sure a lot of people listening to this podcast work in an Olympia York building and don't even know it. And the biggest one here is essentially Brookfield. Hiten Samtani (32:53) Aforementioned Edper Corporation. So Ed Per slash Karina had what about a third of Olympia New York through various confabulation. Will Krasne (33:01) I think it was tied to the World Financial Center project. So as all this is getting worked out, and it takes years, like this takes several years to Hiten Samtani (33:10) Four hundred friggin' bankers as you say. Will Krasne (33:14) work. They take basically the rest of the portfolio. So you have the US assets in a World Financial Center. You've got one Liberty Plaza, two forty five parks. So the Euros portfolio is still there. If you look at Brookfield's own corporate history. It basically calls nineteen ninety six the start of their US expansion. Hiten Samtani (33:36) Jack Cockwell, who was the Bromfman's go-to deal maker who Paul was simpatico with, Will Krasne (33:43) Yeah, see Hiten Samtani (33:44) steps in here. Jack and another young accountant called Bruce Flat. Indeed. They come together. Will Krasne (33:50) They build this into Brookfield asset management, which is Hiten Samtani (33:53) A one trillion dollar AUM goblin. Will Krasne (33:56) One of the four Blackston, Apollo, Brookfield, KKR, basically those four. So one of the most important financial institutions in the world. And essentially they got a several billion dollar head start by stepping into these assets, which they already knew. It's funny. This is how a lot of these companies were made. Apollo was made by Leon stepping into the executive life portfolio, which he had originated when he was working for Michael Milken. So you find these assets, good assets, bad balance sheet. Step in, restructure, and you get in at the right basis and you are off for the races. So while all this is going on though, Paul is still around. He's fighting really hard to maintain the family stake here. He ends up buying Canary Wharf specifically. So the US stuff is gone, but buys Canary Wharf back. Amazing. In nineteen ninety-five. Hiten Samtani (34:44) With the world's foremost enthusiast of Dai Kok after Will and myself, Prince Al Walid bin Talal al-Saud, the Saudi investor and royal. Will Krasne (34:53) Large shareholder what in Citibank? Apple at one point. Hiten Samtani (34:56) Everything. Temporary involuntary guest of the Ritz. Will Krasne (34:59) Indeed. So they end up taking Canary Wharf public again in nineteen ninety nine, in two thousand three, thousand four, lose it again. Morgan Stanley buys it out. Paul ends up, you know, getting shivved a little bit by one of his investors and friends who's one of your favorites. Hiten Samtani (35:16) Shimmy Glick, the Diamond Mogul, and real estate Titan. Yeah, they remained friends for a long time after that. They figured it out. Will Krasne (35:22) It's just business. It's just business. Paul ends up selling his steak back to the Bronfmans and in two thousand nine the last of his steak is sold and that's the end of twenty-two years of canary war. Hiten Samtani (35:39) twenty fifteen, Brookfield, now with the backing of the Cotter Investment Authority, one of the giant sovereign funds, comes in and buys this outright. Brookfield ends up owning both ends of the empire, New York and London. Will Krasne (35:52) It's a full circle moment. Hiten Samtani (35:57) Some people would look at this story and feel regret and feel like this is a cautionary tale of real estate, Icarus, flying too close to the sun, whatnot. That's not my takeaway at all. Will Krasne (36:09) No, it's not. We're human beings. We are here to experience things and having the full range of emotions, the highest highs, the lowest lows. That's what makes us human. These guys weren't robots going to the office the same day making widgets to see someone who did this in one generation. It's just staggering. I think it was Jimmy Kane when Bear Stearns went bankrupt and someone asked him what how's it feel like to go from whatever, three billion dollars net worth or two one, whatever, to couple hundred million. And he goes, You know what? My quality of life It's exactly the same. He's like, the only people who care are my heirs. Hiten Samtani (36:42) Could bring it back to the present day, too. A B Rosen recently saying, Yeah, am I worth a lot less than I was a few years ago? Absolutely, but I'm still worth more than most. Yeah. Will Krasne (36:52) And they still have a sizable portfolio. They are active today. Cousins, grandkids, all that are making their way in the world. And people are gonna remember the Reichmanns. Hiten Samtani (37:08) Getting at is what is legacy really? Is it having the biggest balance sheet or the biggest portfolio? Maybe for a time. But they innovated, they financialized the business to an extent that had never been seen. They took some of the biggest risks and they stuck the landing for the most part until they did not. They're a real developer. They built some of the most iconic structures throughout North America and London. Their legacy is dual. We've got the real estate side and we've got the philanthropy side. Will Krasne (37:36) All that money that they gave away and all the good causes they supported, that didn't get clawed back in the restructure. So that stuff stays forever. And that impact's gonna be felt, continue to be felt for a long, long time. I'm literally moving to Battery Park City next week. Had they not showed up with a one sheet of paper, I would be looking for another apartment. Hiten Samtani (37:56) It all comes back to the title of our first episode. These were men of destiny. They believed in something much bigger than themselves. They created something much bigger than themselves. And they're leaving behind something much bigger than themselves too. If you're not a student of CRE, you might pass Brookfield Place and not really think of the the people behind it. For those in the know, the Reichmanns are still one of the first families of real estate. And I think they'll always remain that way. Will Krasne (38:21) Well said. Hiten Samtani (38:36) This concludes our trilogy on the Reichmanns. We don't typically spend multiple episodes on one family, but this is not a typical family. A couple of acknowledgments here. First, our sponsors, Bravo Capital. You can find them at bravocapital.com. Will Krasne (38:50) LoneBoss, you can find them at loneboss dot com Hiten Samtani (38:53) And Real Property Captive, you can find them at rpcaptive.com. Thank you so much for indulging us on this ride. Producer Jay, what a phenomenal job on this series. Just really brings it to life, so appreciate you, man. Will Krasne (39:05) Thank you. Also, I want to thank Tony Bianco. Hiten Samtani (39:08) What a guy. Tony, thank you. Will Krasne (39:10) Wrote the book that a lot of our research was based on. Tremendous job. Come on the pod. Hiten Samtani (39:16) Tony, you have an open invite. It's an epic and it's so well written. It's not just a dense tome of real estate nonsense. It's a human story. I hope we did it a sliver of justice. Shraghi, who turned me onto this book and got the Reichmanns on my radar, thank you so much. Thank you to Nugget for not barking during this episode, and to John for being such a good boy. Will Krasne (39:37) Yeah, also to Nico Krasny for being asleep right now. Good job. Hiten Samtani (39:41) And we should say numerous members of the Reichmann clan reached out to us when we said we were doing this and their comments, their stories were really helpful in informing this episode as well. Will Krasne (39:51) But you can just tell in speaking with them the impact that this generation of Reichmanns still has, not just on their own family, but throughout the broader communities in Toronto, England, and the United States. And it's a very special thing. So thank guys so much for sharing that with. Hiten Samtani (40:07) When they talk about the family history, it's primarily pride, it's not pathos. Will Krasne (40:12) How could it be anything but? Hiten Samtani (40:13) Well, this was a blast. We can't do this too often because it breaks us, but it was a great time. Will Krasne (40:18) Are we gonna do it again in seven episodes or are we putting those I who knows? We'll we'll do some girl math and figure it out. Thank you. Hiten Samtani (40:24) Alright, thanks man. Ciao.