An Ofer He Can't Refuse and the Private Credit Bazaar

The Private Credit Bazaar

CRE’s transition from the domain of cowboys to the suits means that one has to pay attention to the broader machinations going on in finance, w/ an  👀 toward their industry implications. Today, Hunter from Lewis Enterprises riffs on an intriguing development in the world of private credit. Enjoy! - HS 

By Hunter Hopcroft 

Picture condo construction loans, traded like Toyota Camrys 🚗. Indeed, a potential Craigslist-for-Credit comes courtesy of Apollo’s budding private-credit “marketplace.” Meanwhile, Brookfield is beefing up staff to syndicate larger privately originated debt deals. Both moves show an intent to expand their influence in credit markets amid a wider debt-origination arms race – recall that BlackRock dropped $12B on private-credit shop HPS late last year. 

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Private Credit (Cont.)

Collectively, Apollo & Brookfield have ~ $750B AUM under their credit banners. Deals in the space are getting so massive that may now be willing to shed some of their trademark discretion. A key attraction for borrowers has been 1:1 origination, which allowed for more creative (higher leverage, looser terms, unusual collateral) debt structures. Syndicating & trading loans enables originators to spread risk and better manage portfolios, but comes w/  potentially unwelcome transparency. 🙊 

Private credit's primary competitor is the bank-mediated Broadly Syndicated Loan (BSL) market. While BSL debt is often cheaper, some borrowers prefer or require the speed & confidentiality of direct lending: A PE sponsor arranging a take-private hardly wants their intentions broadcast through a marketed loan process. Syndicating private debt potentially undermines this competitive advantage. 

A marketplace with prices set by actual buyers and sellers instead of fund accountants is another thorny issue. Like all private markets, rare revaluations boost the asset class’s appeal with volatility-adverse allocators. Of course, Apollo’s ambitions extend beyond teachers and firefighters, looking to put private debt directly into ETFs. Successfully doing so requires at least the veneer of liquidity.

As private credit becomes less private, the risk of regulatory scrutiny rises. Reminiscent of Zuck’s platform-versus-publisher distinction, Apollo is careful to use the term “marketplace” rather than “exchange.” Over-the-counter trades, such as bonds and fixed-income securities, must be reported to FINRA’s TRACE system. Private credit has avoided such scrutiny by virtue of its direct lending and limited trading. Syndicated loans do not trigger TRACE, but those players are typically covered under banking regulations. A nonbank-originated, syndicated loan that trades on a “marketplace” begins to resemble…a bond. Assuming the growth of the $1.6T private debt market continues apace, Apollo and its ilk must find their own nuanced distinctions to maintain the cachet and clandestine appeal of (mostly) private credit.

See Also: Zegen’s Private Credit Safari & The Quiet Kings of Capital 

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An Ofer He Can’t Refuse

It’s always a good time to be a billionaire, but even sweeter when it’s bargain season in Manhattan office. Unburdened by crotchety LPs and investor committees, an UHNW can buy a building on gut, or as Eastdil’s Will Silverman recently put it, buy on basis “even if the underwriting isn’t there yet.” In Nov., copper kingpin Aristotelis “Telis” Mistakidis put up the cash for Savanna’s purchase of 799 Broadway, and Igal Namdar has been running riot w/ his Great Neck striver squad. 🎲 

The latest exhibit comes to us from FiDi, where Idan Ofer, perennially listed as Israel’s wealthiest man, is buying 101 Greenwich St (fka 2 Rector St.). Ofer’s purchase price, per PincusCo, is TBD; seller BGO (led by the suave Sonny Kalsi) had bought the 465K sf tower in ‘16 from Jared Kushner/CIM for $221M, or $475/foot – BGO’s partner on the purchase was Kevin Hoo’s Cove Property Group.

Ofer recently backed Nathan Berman’s Metro Loft on an office-resi play in Midtown East; we’ll see if he makes a similar move here. Kushner/CIM were prepping the FiDi asset for a 452-unit resi conversion back in ‘15, but the partners instead decided to sell and book a fat profit on the deal.

The son of late Israeli shipping magnate 🚢 Sammy Ofer, Idan’s bread-and-butter remains shipping, though he’s also a big player in the growing business of global soccer, owning a piece of Atlético Madrid ⚽️ His older brother, Eyal Ofer, is a BFD in NYC CRE circles, backing marquee condo projects such as 15 CPW, 520 Park (Zeckendorfs), the Greenwich Lane (Rudins) and an upcoming MaryAnne Gilmartin project in Turtle Bay.

Fortress-Owned Bank Markets Multi Book

First Foundation, a struggling Texas regional bank w/ outsized exposure to the California multifamily market, opened itself up to $228M in rescue capital from a Fortress-led consortium last summer. Such an infusion (see: Mnuchin-NYCB) is typically followed by a hard look at a bank’s lending book, and we saw that here: soon after the deal, the bank classified $1.9B of its loans as “held-for-sale,” and sold a nearly $500M chunk via a Freddie Q-Series (primer on that program here) deal in Dec. Now, it’s shopping an $800M+ book of performing multi loans, per CMA, tapping JLL for the task. Such debt has traded at favorable prices in recent months - you’ll recall that Valley National Bank offloaded a similarly sized book to Brookfield at just a 1% discount in Dec. And if banks can avoid stock price carnage when offloading such debt, expect more of them to give it a shot.

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A PIMCO Exodus

“Human nature means that institutions at some point lose their sense of mission.” - Bill Gross

Heavyweight investment manager Pimco is hemorrhaging talent at the highest ranks of the company, including some of its key CRE players: Christoph Donner, who oversaw the firm’s N. American CRE debt & equity business, hopped over to Cityview in Jan.; CRE private lending co-head Ravi Anand bounced in Dec. and is on gardening leave; John Lee left to be COO of Blackstone’s BioMed Realty; etc. etc. Some of the departures were triggered by Pimco’s RTO mandate, per Bloomberg reporting cited by mutual-fund publication Ignites, but Bloomberg highlights another, likely bigger reason in its terrific dispatch: lack of juice 🧃 While Pimco’s rivals such as Ares & BlackRock are upping the audacity in growth areas such as private credit, Pimco has been far more tentative – a far cry from the days when “Bond King” Bill Gross marauded through its Newport Beach halls.

“Private credit should be firmly in their remit, and so it could be doing more to capitalize,” Pimco investor James St. Aubin of Ocean Park Asset Management told Bloomberg. That roughly translates from asset-manager speak into: “Get off your asses and do something already.” 🍑 

Steel Man Argument - Something to Ponder

Quickies

• 🎥 Monumental for multi finance: How a Fannie/Freddie privatization could shake out 👶 🦁 

• Witkoff joins Blavatnik on Miami Beach luxe condo project – the 2 are also partners at NYC’s One High Line (fka HFZ’s XI)

• Muni bonds for NJ’s American Dream megamall miss Feb. payment ⛲️ 

• Millennium plans 249-unit resi project in Beverly Hills – absolutely massive for that maniacally NIMBY town

• More WeWork-Amazon action, this time at Brookfield’s Manhattan West (further deets on collab here)

Unquotable Quotes