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Stairway to Heaven & Parkmerced's Odyssey · The Promote Podcast

• Hiten Samtani (00:06) Well the main course is this tasty. I think we just skipped the amuse bouche. Will Krasne (00:10) Yes, chef. Hiten Samtani (00:19) Welcome back to the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani coming in from the studios of ten31 Media. Will Krasne (00:27) And I'm Will Krasne coming in from the studios of my house. Hiten Samtani (00:31) Hoboth Beach, Delaware, but not for long. Yes. How many months we got? Two more? Will Krasne (00:35) Zero if you round down. City. It'll be nice to be in the city. Hiten Samtani (00:41) A shout out to our sponsors, Bravo Capital, a leading HUD and bridge lender that lives and breeds cap stacks. Will Krasne (00:46) And loan boss, the best in class CRE debt management software? Hiten Samtani (00:49) I love how you weave the mid in the mailbag with your And Real Property Captive, the first group captive insurance for mid-market owners. Oof, this week it is time for some California Dreamin'. We ascend Orange County Ziggurat, a stairway to heaven or SoCal's biggest development clusterfuck, depending on your flavor. And back to the Golden State, where a whirlwind of fascinating deal-making has gone down on SF's largest rental complex, Park Merced. Will Krasne (00:51) Violently on message. Now, ziggurat is also the thing that you made in seventh grade when you told your mom at nine fifteen that you have a diorama due tomorrow. So hopefully everyone remembers that. Also wanted to say thank you for the additional reviews. Yeah. Marshall Berman described the pod as, quote, combining master class journalism with institutional insider insight, cutting through the fluff to look at how real operators think. Tremendous. Keep coming. Hiten Samtani (01:37) We're the anti-venom to all the industry pods out there, and we're so grateful that many of you recognize that. Let's get started with the punch list. Will Krasne (01:44) punch list, our signature rundown of the News East News and C R E. Hiten Samtani (01:51) about these gold rushes and every time there's a new gold rush there is a new middleman who finds his way and they tend to be hefty both in character and physically. Will Krasne (02:02) For sure. I'm gonna look at the size of this fella. Yes, so you've got our good friend Jack Sordine. Hiten Samtani (02:08) Don't you wanna meet this guy and have a cigar with him? Will Krasne (02:10) I love the hustle. It's a human interest story almost. Yeah. Where it really is. This entire township pulled all their land together and sold it to QTS. Hiten Samtani (02:19) QTS being the data center arm of Blackstone. Right. Good correction, yes. Will Krasne (02:21) one of the data center arms. They made off like bandits. And it's kind of incredible. This is in Salem Township, Pennsylvania. Right. No idea where Salem Township is. I mean probably shouldn't admit that. Legitimately looking it up right now, adding it to my pitch deck. Hiten Samtani (02:29) Right. It's a pretty crazy story. So 96 families pooled their land together, 1700 acres or so, and sold it for just south of 600 million to QTS. Salt of the earth types. There's a convicted felon in the mix, too. Just people who happen to own land in the area. And it typically takes a catalyst to make all this happen. In this case, it was a guy called Jack Sordoni. So this guy has some priors at being a wheeler dealer. He used to put together assemblages that would then sell to oil and gas people. A couple of years ago, I guess. By dint of being in that profession, he caught wind of Amazon potentially looking to do a thing in this area. And so he didn't know anything about data centers. He says in this excellent journal story that I very quickly had to understand the game. We talk about how there is a limited window in which you can make a lot of money if you move very quickly. And this is a perfect example of that. Will Krasne (03:27) The initial mailbag pod, I talked about how selling land is this is such a great example of it. Jack Sardani, the hustle, the foresight to see that something was going on here. And then really the ability we talked about when the data center project for QTS in Northern Virginia fell apart. Yes. How you have to win the hearts and minds of the local municipality to get a zoning change or get approvals. This is the same thing. This guy ran a ground game to get. Hiten Samtani (03:33) Okay. Will Krasne (03:56) All these people to put everything together because it's just typical game theory where one or two on their own aren't really worth it. Yeah. Together the value is much greater than the sum of his parts. Yeah. May I just say his consulting firm is impeccably named. It's four three consulting, which is the most Pennsylvania high school football thing of all time. Yeah, what's four three defense is where you have four down linemen and then three linebackers. It's a very famous defense. Hiten Samtani (04:06) The gestalt is worth something here. Will Krasne (04:24) Though the Pittsburgh Steelers I think played a three four, but he made these guys like generational wealth across the board. And it's it's kind of amazing. And that's despite some land sellers who hired lawyers and wanted to do away with the middleman. I guess one lawyer challenged him to a fight, which I don't want to fight Jack Sordani. Hiten Samtani (04:32) Five and a half million on average per family. He looks like an ex linebacker himself, yeah. But he said for the most part, the community sees him as a hero. He was invited at one point to officiate one of the weddings for one of these sellers. We would shoot guns with them, drink beer with them, pray with them, he said of the seller crew. One of the things we care so much about is who are the middlemen in this business? We talked about the condo buyout guy. So always good to find the next one in the mix. Will Krasne (05:06) Real estate's the best. Insider trading is legal. You can do whatever you want as long as the other guy agrees to it. If you are willing to go win the hearts and minds of everyone in Salem Township, Pennsylvania, one family at a time, you too can make a giant commission on a multi billion dollar sale. Hiten Samtani (05:20) Okay, next one. Zaz, your boy Zaz from your other world, the other obsessive interest you have, comes into our world here. David Zazlav is trying to buy a summer camp and not just a summer camp, a very specific one. Will Krasne (05:33) Yeah, this is Mohawk Day Camp in Westchester, which I believe his children had attended, so he was familiar with this. This isn't just him trying to get the IP for the movie Heavyweights with Ben Stiller. Hiten Samtani (05:43) Lunch has been cancelled today, due to l hustle. Will Krasne (05:48) But yes, this day camp is part of a larger summer camp empire. Hiten Samtani (05:53) Beleaguered summer camp umpires, I might say. We knew that a lot of weird asset classes find their eventual home on the Tel Aviv Stock Exchange, the TASE bonds that we've talked about. And in this case, this group of summer camps owned by the Brothers Ship Cells went and raised $195 million on the TASE. And then in late May, they reported that they had missed their payment to bondholders. And here's the kicker: they disclosed a $34 million transfer. To another entity controlled by the brothers. When you see something like that happening in the midst of distress, it starts to get a little messy. I can tell you a lot of my sources send their kids to these camps. So they were like, What is my daughter gonna do for the summer? There was some fear that these camps would not open for the summer. And I think they figured out some emergency financing and made that happen. And now they have to just carve out this empire piecemeal tent by tent. These Will Krasne (06:43) These are Jewish summer camps. It's a very big thing. It's a very big deal. Something like two hundred thousand young people attended Jewish camps affiliated with the Foundation for Jewish Camp last year. So these are a big part of Jewish education, identity, community building. Right. It's funny because a lot of these camps had been run by families for generations. These guys got into this in two thousand six. They built up thirty odd camps. A lot of Jewish camps are nonprofits. These were all for profit. I didn't Hiten Samtani (06:57) This is a real coming of age situation. Will Krasne (07:12) Think that this was like a huge money making venture? Hiten Samtani (07:15) I mean these things aren't cheap. I'm assuming there's a decent spread. Will Krasne (07:18) But yeah, I mean the numbers are staggering and liabilities ranging from five hundred million to a billion dollars. Hiten Samtani (07:23) You could also see in the kind of players who've been involved since this collapsed the chief restructuring officer here, Asaf Ravid, the same guy who was involved in the all year Yel Goldman bankrupt. Will Krasne (07:33) One of the most complicated, convoluted bankruptcies that you can ever imagine. So this is probably gonna be a piece of cake for this guy. Hiten Samtani (07:41) Okay, next one. Industrial's having a moment. Will Krasne (07:44) talked about capital flows drive hiring, firing, fundraising. And it's really important to sort of see which ones are up, which ones are down. And despite industrial being a very sexy asset class last five, six years, especially with e-commerce penetration, onshoring of manufacturing, big box, so 500,000 odd and more had been really soft. Hiten Samtani (08:07) But we saw the biggest players like Prologis take quite a hit right in this time. Will Krasne (08:10) Yeah, it wasn't just across the board, because again, there's no such thing as a real estate market. There's no such thing as a real estate as a class. It's just what product type, what geography, what submarket, all these things. Industrial Red Lard was doing fine, but the super tankers, which are the things that Amazon was just taking down left and right, FedEx was taking down left and right, all of these guys. That was really slow. And that's come back. That's completely come back. What we are seeing is deals for five hundred thousand square feet and more, these are massive, massive transactions. They're not something you sign on the back of the tenant reps. Chevy. These are years long FPNA exercises. They broke ground on more developments in the first half of this year than it did in all of 2025. And a big portion of those are coming from three PLs. Three PLs have taken thirty million square feet in Q one alone. Hiten Samtani (08:54) That's like a jump of what, sixty five percent from the previous year? Will Krasne (08:58) And that's twenty percent of all leasing activity, writ large in industrial, these are all for the most part commodities. The location is really the amenity. They don't have the exact same access or truck turning, but they're practically the same thing. It's really supply and demand. And construction is at an all time low and demand is going up between onshoring and then data center too. Data centers require a lot of stuff. They didn't necessarily require that many people when they're done. Hiten Samtani (09:23) Yeah, people, people is another. Will Krasne (09:25) No, but stuff and that stuff needs to go places. And so wherever you have a lot of data center activity, you have a commensurate amount of demand for big box. Hiten Samtani (09:34) narrative of real estate has moved so far away from this kind of asset class that it's interesting to see that the data might be saying all the Will Krasne (09:40) It's just been sort of surpassed in sexiness, as you said. And sexiness drives vibes and vibes drive capital. But it doesn't mean that there's not demand for space. And eventually if tenant demand is still there and supply is at all time lows, what that's gonna mean is rents are going up, that means valuations are going up, and that means more capital's coming back into the sector. And of course that means we're gonna overbuild and then we're gonna be soft again. Hiten Samtani (10:01) That's it for the punch list. When we come back, it's time to climb some stairs. Many, many, many stairs. Okay, I'm here with Aaron Krowitz from Bravo Capital. Skilled nursing facilities, SNPs as they're known in the business, you've been diving quite deep in. Talk about a regulatory minefield. SNPs is as complex and intricate as it gets. Will Krasne (10:24) Every state is its own galaxy and operates completely different than every other state. The lenders and operators that got burned very badly historically in SNFs were groups that had cookie cutter approaches who felt like I could roll this stuff up and have the same approach so local. And we say often that if somebody financed a sponsor who did well in Minnesota, who had eight SNFs and they're about to do their first sniff in Florida, that doesn't mean you should finance them in Florida. What we look for often is commensurate experience with a real emphasis on comparable local successful experience a sponsor has had. And we monitor, of course, reimbursements and the regulatory developments that are occurring. Hiten Samtani (11:06) Thank you, Aaron, and where can people find you? Will Krasne (11:09) could find us at BravoCapital.com. Hiten Samtani (11:15) I don't know how much time you've spent in the O. C. Will Krasne (11:18) Spent four crucial years in high school in the O C. Hiten Samtani (11:22) Part of your baseball touring bit or what? Will Krasne (11:24) No, this is with Ryan and Marissa and Seth. Who are you? Whoever you want me to be. Hiten Samtani (11:31) Okay. Yeah, fair. We talk a lot on this pod about incompetence and one of the big themes of this podcast is is private markets incompetence, but everything is relative. And when you look at something like the ziggurat, you see government incompetence at this superscale. my God. How do you want to begin this? Will Krasne (11:50) Well I think first it's important to define what is a zygorat. Zygorat is a type of massive structure built in ancient Mesopotamia in Iran. It is a form of terraced compound of successively receding stories or levels. Notable zygorats include the great ziggurat of Ur, near Neserot, and the Ziggurat of Aker Kuf. Hiten Samtani (12:08) And one built for North American aviation in the OC master plan community of Laguna, Nigel. So that's where we're gonna start our story. Will Krasne (12:17) At the right hand of the Indies there is an island called California. Hiten Samtani (12:25) So the late 60s, we're in the thick of the military industrial complex. Per report prepared for the JSA on the building's historical pedigree, which I read in full, by the late 1950s, one out of every 15 working Californians was being supported by the Cold War in some shape or form. So a lot of these big aviation companies go and build these giant headquarters. And NAA in the late 60s commissions this one and they choose this master plan community called Laguna Nigel. They merged with a company called Rockwell, which buys thirteen hundred plus acres to get this going. Will Krasne (13:00) Yes. First, just one thing to note is it's the post war building boom. So this land is still cheap. This is all orange groves and farmland. This is how Donald Brenn became the king of the OC over in Irvine. A lot of the developers were trying to option and buy as much land as they could, over stretching themselves. And the guys who sold this to the NAA Rockwell joint by the I can't think of Rockwell without like, I always feel like Hiten Samtani (13:23) That is where it Will Krasne (13:26) it's Cabot Cabin Forbes. Hiten Samtani (13:29) Why does that name ring a bell? Will Krasne (13:30) That is where a young guy, well, he's old now, but a very famous developer and owner named Mort Zuckerman. Wow. Cut his bone, cut his teeth. I was gonna say made his bones, cut his teeth, same, did both. Yes, indeed. And so North American Airlines and Rockwell, this is maybe pre-led being taken out of paint, tapped an architect named William Pereira in his firm to build a real one-of-one camp. Hiten Samtani (13:42) Founder of Boston Properties. They plan a 1 million square foot headquarters that would house about 7,500 workers to build what would become the OC's largest single structure. And the amazing thing is like you think million square foot, yeah, I don't think you envision a design quite like this. Will Krasne (14:13) In New York, we're very used to setbacks to get zero density. This is taking that to an extreme level. And also one thing I would point out too is that we talk about how we've really had to r become more efficient with our space. A million square feet for seventy five hundred workers is pretty efficient, I would say. Yeah, so they were ahead of their time there. Hiten Samtani (14:30) Yeah. It's almost like we work style. However, they didn't quite map out what would happen next. A few years pass, the building's complete, but Rockwell doesn't have a use for it anymore. Look, you need a little bit of chutzba to remain in this business, right? So Rockwell goes to the government and says, Listen, why don't we try this? You take the ziggurat from us and we'll take two plants elsewhere in Southern California, and you can throw in some machinery as well. Amazingly, the government buys this trade. They're like, fine. Will Krasne (15:00) Who Hiten Samtani (15:00) Yes. They take ownership of the ziggurat, but they don't again, they have no idea what to do with it too. So it's just languishing for a few years. Will Krasne (15:07) The government their plan was to go dig up Sargon the Great from Mesopotamia and unfortunately didn't work. Hiten Samtani (15:15) thirty, forty percent of it was vacant forever, right? And sometimes more than that. So they try to sell this thing, no dice. They go and then say, you know what? We should spend more money on it and renovate this thing. It's a million square feet, I guess. That's another God knows how much they spend on it. Will Krasne (15:29) How do you repurpose the ziggur? Maybe you just fill it in and make it a rectangle? Hiten Samtani (15:33) So this goes on for nearly forty years. In twenty twenty two, they decide, all right, let's get serious. Let's go and sell this thing for real. So they put it up for sale. This is about a ninety acre property. Will Krasne (15:44) So ninety acres in prime southern California. Hiten Samtani (15:47) Prime Prime Prime O C and by this time the O C is one of the most desirable markets in the country. Will Krasne (15:52) Over these forty years, the the orange groves got filled in and stuff happened and this became incredibly valuable but for the ziggurat. Hiten Samtani (16:01) They're gonna do it via an auction in March 2023. Now, all a buyer needs is a 300,000 deposit and a little bit of clock. However, there's a fatal caveat here. Anyone who buys this must create a preservation easement for about twenty-six acres of this complex in which the ziggurat has to be maintained. So you've got to keep this monstrosity if you're Will Krasne (16:22) Buyer. What I loved is not just the Xerot had to be maintained at the guard stations because this vacant building has to be protected at all costs. So the suggested starting price for the auction was seventy million dollars. Yeah, you can see that working out. How many bids did they get? Yeah, that's bad. Hiten Samtani (16:31) Yeah. Seventy million for a ninety acre site. Zero. So they're like, okay, let's go back to the well. Let's rethink our strategy here. They run the auction back. Crucially, this time they take that preservation mandate out. But the GSA doesn't re-appraise the property without that preservation easement. They keep the floor bit of 70 million, even though taking a deed restriction out can exponentially increase the value of a property, whether it be a caravan king or a nursing home on the lower east side. Anyway, they don't do this. And it's back on the auction market. Will Krasne (17:14) You tell my number of 1000 or number 91100. The auctions run an interesting way where every bid restarts the clock for a day. Hiten Samtani (17:24) They call this a soft close. Will Krasne (17:26) The auction takes five months. Hiten Samtani (17:29) It really does. There's three bidders who make a total of 157 bids. The auction floor price was 70 million. It ends up trading for 177 million. Will Krasne (17:38) We could have saved several months by starting much higher. Hiten Samtani (17:43) Now it's time for the winning bitter. Who is it? Will Krasne (17:46) It is a thirty three year old construction engineer named Cameron Hildreth. Hiten Samtani (17:50) A G C who wanted to get into development. And then he said, All right, let me start with probably the most complex project known to man on 90 acres and make a hundred and seventy seven million bid. Will Krasne (18:01) Well, this is how a lot of great fortunes have started with people who didn't know what they were doing buying ostensibly great real estate that had some sort of challenge to it. Hiten Samtani (18:09) No, this reminded me off though when I saw the story and when people were describing this guy to me, I'm like, Jacob Garlic, the flat iron building the guy, the guy who came in and made that bid. Will Krasne (18:19) There's more there there than with Jacob Carl. This guy had a real partner who had money, but you know, wasn't necessarily Hines. Hiten Samtani (18:28) Partner here is a guy called Jeff Pintar. Jeff Pintar does have money, but he made all his money in distressed single family home trading. That's what he did. So two partners, one with money, one complete non-entity, neither of them have any experience in this arena whatsoever. Will Krasne (18:43) Here's where they're kind of real and sort of bonkers is that they went hard the ten percent non-refundable deposit. That's eighteen million dollars non-refundable and went about raising the rest. Because I think they had a very long closing period. So you had the ability to go out and fundraise. Hiten Samtani (18:50) Close to eighteen million bucks. Another thing here is typically you don't really go to the press until you have your things tied up. But what distinguished this whole caper is that they were very public almost as a mechanism to generate more interest for their fundraise. And so this is what Hildreth said, I believe to the OCBJ. He said, The project, quote, has real interesting topography. And he adds, Imagine, Will, you're an LP and you hear this. He says, We felt it was a great project for us on a larger scale. It's a level up. Will Krasne (19:28) I there's levels to this. If you've done seventeen small bay industrial deals and now you're saying, We've nailed this, we want to go to the next step. This is a level up for us to do a big class A spec development or something like that. That's one thing. To be fair though, how experienced can one be in redeveloping a ziggurat? We literally don't know how Hiten Samtani (19:47) Even Steve Ross be starting from scratch. Yeah. Will Krasne (19:52) This site though, again, is very valuable and attracts the interest of some owner users who would like to make the ziggurat their own home. Hiten Samtani (20:02) If you're not a developer by trade, you might have the ability to make the site work at the right price. So one of those bidders in question is a hospital system out of Newport Beach called Hogue, really deep pockets, big donors, what have you. They have long eyed an expansion into southern OCs, which is where this site is. They sued the GSA because apparently they were one of those three bidders that we talked about. And they said that during the auction process, Jeff Pintar was like calling them and saying, Hey, instead of competing, let's work together. And Hogue said that this was collusion and he should have been DQ'd from the whole process as a result. And because he wasn't, Hogue sued the GSA. Will Krasne (20:39) The issue here is timing because depending on what the rules are, don't do this now. Win the bid. Yeah. Put up the deposit. Yes. And then say, Hey. Hiten Samtani (20:46) I would have venture to guess that if Pintar and Hildreth tied this up and then flipped it to Hogue, they could have made a little bit of money right there. So the GSA gets spooked by this lawsuit and terminates the deal with Hilco and awards it to Hogue. No explanation is given as to why this happened, but they did this. Will Krasne (21:03) Yeah, and the biggest thing is they gave the deposit back. I was stunned reading it. Hiten Samtani (21:07) So you're interpreting this as a get out of jail free card, you actually dodged a bullet. Hildreth, though, did not see it this way. And he said he was gonna go and sue because this deal was taken away from him. By this time though, there's a schism in the JV. Pintar and Hildreth are saying different things. Will Krasne (21:24) Whole thing is just completely bizarre. The auction is cancelled heretofore. Hiten Samtani (21:30) Hope doesn't get it, Hilco doesn't get it, it's back to square one. Can you imagine a private entity getting away with shit like this? You Will Krasne (21:37) wouldn't be able to live this down for decades. Hiten Samtani (21:40) So at this point, the GSA maybe thinks, all right, we need some adult supervision here. Earlier this year, they bring CBRE in. Given the trauma from what just happened with these couple of botched auctions, CBRE, I'm told, runs the tightest, most buttoned-up process. Oftentimes we'll talk about how brokerages and brokers will play gatekeeper. They do none of that. They're essentially acting almost like a glorified tour guide. Will Krasne (22:04) Sums you hear the seller, you know, what do they value? Do they value highest price? Do they value terms? Do they value flexibility? Or do they value certainty? And in this case, you're dealing with an entity who's like, We need this fucking thing sold. A real person. Hiten Samtani (22:19) The GSA at this time is led by Ed Forrest, who's a longtime Cushman in Wakefield veteran executive. As a former broker, he's like, guys, we gotta have a broker in here. Will Krasne (22:29) They did two things that were different. They said this is as is where is. Yep. Do it like that. And there's no D D. You can't tie it up before the money goes non-refundable. You're going hard. Day one. Hospital systems, I will say, are huge buyers and owners of real estate, and they're tremendous buyers. Once you get them to yes and the snowball's rolling downhill, it's the best because they're not economic buyers in the way that a private equity firm would be to some degree. Yeah. They're valuing it on a different metric than a financial buyer would buy. And Hogue ends up Hiten Samtani (22:50) Yeah. Will Krasne (22:58) Winning the prize, they pay thirty million more, C B earn that fee. And they have a great photo op outside of it and a great podium once they announce this deal. What does it say? Hiten Samtani (23:09) From vacant to vibrant. There is one final quirky condition of the sale though. So the preservation stuff was done away with that you have to kick in a couple million bucks into a fund, or you find a qualified nonprofit to run the preservation process. Pretty straightforward compared to the initial killer constraint of keeping the freaking building in place. However, there is one condition in here, Will. Will Krasne (23:12) Love it. You did have to keep the building in place. Just a very, very tiny building. The buyer Hoag had to donate a scale model of the building to the local historical society and they took on all costs associated with that endeavor as part of their purchase. Hiten Samtani (23:48) I'm glad that didn't kill the deal. What is this? Will Krasne (23:51) Center for Hiten Samtani (23:58) 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 (24:08) The 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 debt tabs was really, really annoying. Maturity dates, extension options, rate caps, ugh. My spreadsheets were beautiful, but at what cost? Hiten Samtani (24:28) Sounds like you had good ROI, but your ROI BD, return on invested brain damage, not so good. So what changed? Will Krasne (24:35) 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. Don't. I'm not proud of it. But the one-click DSCR testing, every lender adjustment, every unique requirement automated? my god. Hiten Samtani (24:49) In this day and age. Mm-hmm. 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. Well what if I told you insurance could become an asset instead of just an expense? Will Krasne (25:17) But I'd say you're trying to sell me something, but also I'm interested. Hiten Samtani (25:21) Fair. Here's the math. You spend two million on insurance annually, loss ratio is well under 30%. Over five years, that's about ten million out the door, zero return. Will Krasne (25:30) Painful, but accurate. Hiten Samtani (25:32) What if 7 million of that built up in reserves that you actually owned? 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 (25:36) Pretty interesting. Tell me more. I like this because that's what the big boys do. Hiten Samtani (25:51) 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 sent you. Will Krasne (26:08) MetLife used to build humongous rental complexes. Hiten Samtani (26:13) They used to build things in this country. Will Krasne (26:15) did. They all have their own histories. Sti Town and Peter Cooper Village were built by MetLife around the same time as Park Merced here in San Francisco. Hiten Samtani (26:23) This is salt of the earth workforce housing stock. That's the original intention of these things, but they happen to be in some of the prime neighborhoods in some of the top cities in the world. Will Krasne (26:33) And Peter Cooper Village and Sty Town, subject of a wonderful book, Other People's Money, by Charles Bagley. And you might think that that was the most crazy story out of any of these large super tanker super tanker isn't even the right word. These are thousands of units of infill housing in prime areas of New York and San Francisco. It's not. Hiten Samtani (26:39) Miss you man. It has stiff competition in Park Morset. Will Krasne (26:59) Park Mercedes, it's what it's San Francisco's largest housing complex, is the second largest single housing complex west of the Mississippi. Hiten Samtani (27:08) Let's be super clear. San Francisco is one of the nimbiest places in America. It's really, really hard to build multifamily in a place like San Francisco. This is about 3,200 units. But importantly, the site is 150 plus acres. So there's a lot of room for redevelopment potential. It has been home to an incredible cast of characters, and we don't have time for all of them, but very quickly, Leona and Harry Helmsley are in the mix, Carmel partners. I think we should start our story with. Larry Gluck. Will Krasne (27:39) Yes, so Larry Glock, founder of Stellar Management. Hiten Samtani (27:43) One of the landlords in the New York City rental game. Will Krasne (27:45) Indeed, and stellar management of course was formed with stellar Hiten Samtani (27:48) Steve sorry. Steve being Steve Whitkoff. In two thousand and five, they come in with Rock Point and they buy this complex in about a seven hundred million dollar deal. The guy running point for Gluck on this whole thing is again, God bless CRE for the characters, Rob Rosania. True, true one of one guy. Apparently he goes by the nickname Big Boy. Will Krasne (28:09) Yeah, and not cause he's a big fan of Bob's. We love good food just like you do. Hiten Samtani (28:15) Here the playbook is close to identical to Stytown, which was lever the fuck up and deregulate the rent stabilized units as quickly as you can. Will Krasne (28:23) It went slightly better here actually. Hiten Samtani (28:26) So in twenty ten they project there's a default imminent and at this point Fortress comes in. Will Krasne (28:32) I'm trying to think of where in the lifecycle fortress they are here. So they are post IPO and being Hiten Samtani (28:37) I think they've got MacLeod by the balls already. Yep. Will Krasne (28:40) Mm-hmm. Hiten Samtani (28:42) Rosania is by now independent and he stays in, takes a stake under a new company called Maximus Real Estate. Will Krasne (28:49) I love that a guy named Big Boy names this company Maximus. Hiten Samtani (28:52) I'm my signal. Unleash hell. It's so on brand. A year later, this is the crucial thing that happens. The new partnership team gets a multi-phase redevelopment approved, which will add net about 6,000 units to this 3,000 unit complex. For a NIMBY hellscape like SF, I cannot overstate how big a deal this is. This is a Will Krasne (29:12) God name magic trick. Illusion, Michael. Hmm. Something a horse money. No idea how they did this. Hiten Samtani (29:15) It was pretty close by the way. The the Board of Supervisors, I believe, passed this six to five. Will Krasne (29:22) This is not just a magic trick in terms of getting more housing approved. The value that was created through that. We talked about the deed restriction at the ziggurat. This probably doubled the value, tripled the value. And so of course, Fortress being the traders that they are, they cash out. So in twenty fourteen, there's another recap. Hiten Samtani (29:34) It's hard to put a number on it really. It's crazy. Portress that remembered put in 175 million, sells out their stake for 375 million. It's a 200 million profit in four years. And I know Will loves IRR math, so let's do a little bit. Will Krasne (29:55) If you do a double in four years, that is pretty, pretty pretty good. Pretty good. Hiten Samtani (29:59) Our boys at 601 West come in. We've been talking a bunch about these guys. Mark Karazak, Harry Skydel. They're the ones who've been partnering with David Werner all over the place, buying these discounted office buildings in LA, New York, Chicago. So they're in the mix here. And the new partners put in some fresh debt. They get a 450 million senior loan from Ladder Capital, which okay. But the next bit is the jaw-dropping bit. Will Krasne (30:24) Eight hundred million dollars of Mez from Chris Hones TCI who's provided some of the highest octane mes throughout you know fifty seventh street in New York. This is not totally out of character for them, but man, the clock is ticking here because this is something like a hundred plus million dollars a year of interest on this mez, I would wager. And remember, this is twenty fourteen. So we're talking within nine years, Rock Point bought this for seven hundred. Hiten Samtani (30:52) million dollar valuation, yeah. Then Will Krasne (30:54) Debt on this is one point three billion. Speaks to how valuable that housing addition was. Hiten Samtani (31:01) And that's not all, right? Multiphase development, phase one, which is 1700 units or so, something like that at the time, gets approved. That entitlement further boosts the value of the complex because you you get the master plan approved and then you get each individual phase approved. So phase one's approved. A couple years later, in 2019, they land a $1.8 billion refi on this project. Will Krasne (31:22) Can't believe this. It's incredibly impressive to pay hone and ladder off like this. Just speaks to the underlying value of the land, continuing to compound as they get these entitlements and everything too. Hiten Samtani (31:33) And this is a one and a half billion dollars of CMBS debt and another three hundred million or so from AMCO in the form of Mes. So they have this incredible cap stack, they have a big mandate, but they just can't make it work. We all know what's coming the next year, right? COVID. So it's it's it's Will Krasne (31:49) Tough time. Yeah. And San Francisco, one of the hardest hit cities in the country, that was the damning factor here is cause the land and the property stopped stopped to count down in value. Hiten Samtani (31:57) And forget about any new construction at this point. Will Krasne (32:00) Just not happening. Just definitely not happening. So with this new enormous amount of debt and San Francisco going into a very dark period, the complex needs to be restructured. And so Rosania and Max Smith, their equity is restructured, and we bring in a new player, a player from across the United States who's made their bones in New York at Yellowstone Real Estate, which is founded by an Israeli billionaire. Yukirgai. Yeah, you Kira Gabai. Huge Hiten Samtani (32:26) Huge, huge player in Israel, and his guy stateside is a guy called Isaac Hera. He used to run a company. I don't know if you remember Brack Capital Real Estate. yeah. Yeah, Isaac used to run that. And he has built a pretty big reputation of cap stack sniping. He is a very opportunistic investor. He gets into distress capital stacks. So the Moni Building, 1740 Broadway, that's them. They just got a big construction loan package. Will Krasne (32:34) Yeah, yeah, for sure. And they really made a very savvy trade here. So remember how we talked about how phase one got approved and you have to do this in phases. And I think there's nine of them or something like that. So the collateral for the loan that Isaac Hera and Yellowstone give to Maximus is just the land on phase one. And that's carved out from the rest of the CBS. Hiten Samtani (33:12) I was so fascinated by this carve out component. So the bondholders would not have claim to this dirt if things go south, right? It would be Yellowstone that would have dips on it. Will Krasne (33:22) And not even just that, it's just avoiding the entire headache of dealing with all of the same monoimano here. Hiten Samtani (33:27) Servicer and all of that crap. And as this is happening, the broader complex, the non-development portion is really going through it. Falls into default. Harry Sidamer's team from SL Green, GreenLone services the special servicer here. They look to appoint a receiver, the judge grants that request. Will Krasne (33:45) They bring in a new PM company. And that's really tough here because if you're Maximus and you have a project like this, the property management fees are enormous. It just helps you cover overhead and everything like that. So that's a huge blow. And unfortunately, it seems as if they are entering a different stage of their careers, Bill Simmons would say. And they end up missing payroll for a bit. Rosannea, this wonderful article on the San Francisco Standard, we'll put it in the show notes. Hiten Samtani (34:10) Rosanna gets on a call with the staff and he says, We have a recap partner incoming. He cites a guy who runs a company called Cirrus now, which is in Atlantic Yards, and he says they're interested here. When an employee of his asks, like, is there anything we can do to make this happen? He just says, Pray. Will Krasne (34:26) We have these two Hail Marys coming in, so everything's gonna be okay. The other group that he talked about, in addition to Sears, was Praxis, another big distressed multifamily investor. And Praxis told the standard they don't even know who Big Boy is. So essentially where we are is the existing complex is foreclosed on or in receivership rather, and Yellowstone on phase one of the development parcel. forecloses on its debt and they're actually going ahead with the redevelopment and they're doing it without Robert Rosania. So Park Mercedes for the first time in twenty years is Sands big boy. Yellowstone, this was a very opportunistic and canny investment. And if San Francisco continues on its trajectory, they are going to do quite well. Hiten Samtani (35:10) What happens to Rosagna? We should give him his flowers a little bit. He kept this going for a long time. Pretty amazing how he got to the stage. Will Krasne (35:13) I think a lot of If goes back to how hard property management is, especially a complex like this, think about it. Tishman Spark can do it. One of the largest, savviest real estate investment firms in the country couldn't make the same thing work across the US. So for Robert Rosania to hang on as long as he did is really impressive, especially the land, these ever increasing and also just but the land development work too, to get the additional density, to get the approvals, can't stress enough how impressive that is. Hiten Samtani (35:38) Huge finance things and recap. I will say that Tishman Spire, they lost only less than sixty million dollars on the Stytown bet, and their equity there, the one that really took a bath was CalPers. And it was here too. I feel like California pensioners are the unwitting victims of all these CRE misadventures. Will Krasne (36:00) It's hard business. What are you gonna do? I will just say that this is not the last that we have heard of Robert Rosinia. I will guarantee you that. Hiten Samtani (36:15) That's it for the promote podcast this week. Government ineptitude and operatic bravado in the face of severe distress. Will Krasne (36:21) And that's just this week's episode. We started the top talking about a moose boosh next week with the Reichmans. That's really what we're gonna be talking about in terms of operatic real estate stories. Hiten Samtani (36:31) I'm so excited. We're gonna have to probably take some time out and map this one out 'cause it's gonna be too complex to get right in one go. And then we can do what these Senra guys do and release the mind map to the world and charge people extra for it or some crap. Will Krasne (36:43) Close friends of the pod will know that I have a little map of how I want things to work in the future with my setup. I have a friend who calls it the flux capacitor, so we may need our own flux capacitor for this episode. Hiten Samtani (36:55) I'm really looking forward to this next one. A big shout out again to our sponsors, Bravo Capital, a leading Hudden Bridge lander that lives and breeds cap stacks. You can find them at BravoCapital.com. Will Krasne (37:04) Real property captive. They're the first group captive for mid-market owners. You can find them at rpcaptive.com. Hiten Samtani (37:10) And LoanBoss, the best in class CRE debt management software. Find them at loanboss.com. Will Krasne (37:14) I think we're building something pretty special here. So partnerships at thepromote.com. We're really looking for brands, companies that we vibe with, that speak to our souls. So come out for us. Hiten Samtani (37:27) Fit us up. Thanks, Will. Ciao. Will Krasne (37:29) Thank you.