Caiola Chronicles & a CMBS Blitz Sale

Empire State of Mind

Before the suits got into the game, with their missionary zeal for maximizing risk-adjusted returns, we had guys like Benny Caiola: Urban cowboys who treated building acquisitions like conquests, often made over red sauce meals at Mezzaluna 🍝 . Life was meant to be lived – Caiola, a Sicilian immigrant, was one of the preeminent global collectors of Ferraris & a pal of Horacio Pagani – and real estate holdings were held for decades. By the time he died in ‘10, Caiola had amassed one of the most enviable portfolios of Manhattan multifamily, and when Blackstone came knocking in ‘15, the family had quite a package to sell: 1,000 units clustered in Chelsea and on the UES.

Private Credit Senioritis

Interesting chart on private credit (so hot rn) via MSCI: Since mid-’22, defaults for senior loans have nearly tripled as we exited the ZIRP era. Private credit tends to be mostly a floating-rate game, so this tracks. The analysis looked at 30K loans (not just CRE) held by closed-end pvt. funds, and treated loans valued < 80% of cost basis as nonperforming.

Caiola (Cont.)

After some sort of fuzzy deal between the Caiola family & Joe Sitt fell through, Blackstone, in partnership w/ Fairstead Capital, bought the portfolio for $700M. The deal fit Blackstone’s thesis at the time that New York living never goes out of style, and unlike its other megabet at Stuy Town, most of the units weren’t subject to pesky rent-stabilization laws. Over the next 3Y, Blackstone sold some of the holdings off to other investors, and took out a $270M floating-rate CMBS loan on the remaining 640-odd units in ‘19. Things didn’t go to plan, however: by early ‘23, the debt had been sent to special servicing. Last August, Blackstone sold a 51% stake in the portfolio to Atlas Capital Group for $142M, at a valuation that pretty much wiped out its equity.

Atlas’ purchase price included the $90M+ in mezz debt, so do spare a thought for the Korean investors who did that deal (more on that theme here). And now, a JV between Andrew Farkas’ Island Capital & JW Capital Management has bought the mezz and taken control of the portfolio, per CMA. Farkas/JW also landed a $270M bridge loan to pay off the sr. debt, according to the publication. The new debt is also floating-rate, but that’s now going the right way, and so I wonder how many more maneuvers of this sort we’ll see in coming months – investors flush w/ funds targeting deals where the brick is good, but the capital structures are baaad. 🧱 Come in, buy the debt for a song, take control, and finance with Fedwinds on your back.

“The truth is, when there’s distress, you should lean in and take a little bit more risk,” Farkas said in Jan. (the interviewer seemed to be there under duress). “It appears to be more risk — it’s actually not.”

A CMBS Blitz Sale

Over the summer, the DoJ and SEC started looking into whether Western Asset Management (WAMCO) was favoring certain clients over others when it came to derivatives trades. The probes led WAMCO CIO Ken Leech to take an “immediate leave of absence,” and investors started getting the hell outta Dodge: assets in the firm’s flagship core plus bond fund fell to under $13B, per Bloomberg, less than half the amount WAMCO held at the top of ‘24. Over 40% of the fund’s investments are in mortgage bonds, per the publication. To meet investor redemptions, WAMCO has sold nearly $400M of sr. CMBS, per CMA, as well as some mezz bonds from single-borrower deals and agency CMBS.

Dallas Buyers Club

Dallas’ tallest tower will soon have new owners: PegasusAblon’s Mike Ablon & Hoque Global’s Mike Hoque are in contract for the Bank of America Plaza and 4 surrounding blocks, where they’re planning a new luxury hotel and an overhaul of the street retail.

The seller is Metropolis Holdings, which manages millions of sf of prime office space for the estate of late German billionaire Hugo Mann, who paid $300M for the 72-story, 1.85M sf tower in ‘98. No price was disclosed on the new deal, per D Magazine, but safe to assume it traded for well below that figure – a recent appraisal on the property came in at $143M.

The buyers, who pegged the redevelopment job at $350M, have quite a task ahead. The DFW office market had a 22% vacancy rate in Q2 and net absorption of -950K sf, per CushWake, and BofA will soon be leaving for a new build in Uptown. Both are seasoned urban revivalists, albeit from v different backgrounds: Ablon’s a 5th gen Dallas guy and onetime mayoral hopeful who made a mark on the city’s Design District, while Hoque’s a Bangladeshi immigrant who parlayed restaurateur chops (Wicked Butcher, Dallas Chop House) into a flurry of big-ticket mixed-use developments - worth noting that Hoque is quietly backed by Kris Davis, the daughter of oil billionaire (and Texas Rangers boss ⚾️ )Ray C. Davis 🛢️

Getting the street retail right is the key to the whole job, Ablon told D. “If you can spur street life, then people want to be there,” he said. “And if people want to be there, then great things happen, and you have a self-fulfilling prophecy.” 🍽️ 

Here’s Jony!

An aesthete best known for his maniacal control over process is taking his talents to an anarchic stage: the San Francisco real estate market. Jony Ive, former design czar at Apple, has used $90M of his considerable fortune to snap up half a city block in the Gold Rush Era hood of Jackson Square, per the Times, and wants those buildings to be touchpoints for a revitalized SF.

“I don’t know whether it was reckless,” Ive said. “But I really felt we could have a contribution.” His studio, LoveFrom, will occupy 2 of the buildings, and Ive hopes that his throwing up creative pixie dust will draw other cool firms in: Emerson Collective, the company founded by Laurene Powell Jobs (Steve’s widow) is in the mix, as is Josh Kushner’s Thrive Capital.

Quickies

• Nightingale drama: Elie Schwartz’s lawyers resign from bankruptcy case bc he hasn’t been paying them 👏👏 (catch up w/ it all here)

• Original sin: The $1.5B RE deal that doomed Red Lobster 🦞 

• Nathan Berman (mini profile here) & Intervest sign deal for 1,300-unit office-resi conversion in FiDi 

• US banks made $1T windfall in high-rates era 👯 

• Indian hotel operator Oyo buys Motel 6 for $525M in all-cash deal

• Receiver alleges Shaya Prager is withholding funds needed to manage Chicago tower (catch up on Shaya and other Lads of Lakewood here)

• Tides, Ashford among those that won’t be saved by rate cuts 🌊 

• FHA-financing eligible condo hits market in Manhattan

Unquotable Quotes