Defaulter Circle of Life & America's Most Valuable Skyscrapers

The Defaulter Circle of Life

“It's almost like an Etch A Sketch — you can kind of shake it up and we start all over again." - Eric Fehrnstrom, Romney campaign advisor

There are bad properties, where a buyer wishes they had never gotten into the deal in the first place. And then there are bad capital stacks; situations in which perhaps one was overzealous w/ projections, made rosy promises to investors, and took on too much debt. At the right price, these deals could be worth fighting for. Especially if you feel like your long-suffering lender is a soft target.

Take 141 Willoughby, a new build in what was once heralded as the next great office corridor, Downtown Brooklyn. Savanna, a macho fund manager led by Chris Schlank & Nick Bienstock, bought the site for $28M in ‘14 and in ‘21 snagged a hefty debt package from AIG & PIMCO 😭 & AB Carval to build a ≈ 400K sf office tower. Construction wrapped up at the top of ‘23, but leasing went nowhere. By this May, Savanna was in default on the PIMCO debt, and the lender began shopping the note.

Now, a familiar buyer has emerged, according to investor docs viewed by The Promote: Savanna 🪞 , which is partnering w/ Capstone Equities on the deal.

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Capstone/Savanna (Cont.)

Their plan – the deal isn’t finalized – is to pay just $107M to take control of the property via a deeply discounted sr. note purchase, per the investor docs. Such a deal would wipe out AB Carval’s mezz position ($79M) as well as the $148M in equity Savanna had raised for the project – at least some of that equity, sources said, came via an OZ vehicle funded by wealthy clients of UBS (those lads really can’t catch a break – catch up on the tragicomedy at TSX Broadway here).

Savanna declined to comment, as did Eastdil, which is handling the note sale process, while Capstone didn’t respond to requests for comment. The partners, who are raising just under $40M in equity for the deal, are planning a 174-unit resi conversion of the tower’s upper floors, and Savanna will continue to run the building. Capstone’s pegging the post-conversion basis of the deal at $341/foot.

This isn’t Capstone’s first dance w/ a Savanna property. The firm, led by Joshua Zamir (son to Zamir Equities’ bigwig Asher), struck a deal this fall to buy Savanna’s distressed 360 Lex for $65M – just over a third of Savanna’s $180M purchase price in ‘19. Capstone was partnering w/ AmTrust RE on the deal, but I’m now told that Capstone may no longer be involved and that AmTrust is going it alone. In the investor docs, Capstone touts its success repositioning the distressed Whale Building, which it bought the NPL on, foreclosed and has since brought in 120K sf of leases. (The sponsor on that one, of course, was Elie Schwartz’s Nightingale 😍; Avi Kollenscher, now Capstone’s COO, used to work there.)

Elsewhere, Savanna, w/ the backing of copper kingpin Telis Mistakidis, is buying 799 Broadway for $255M ($1,440 foot) all-cash, even as it’s losing other office properties.
See also: The Billionaire and the Great Neck Strivers & Some Towers Are Worth Fighting For   

America’s Most Valuable Skyscraper

On luxury condos, it’s easier to pinpoint the alpha building. You keep score by sales and prestige of buyers, and it’s fairly straightforward to see the crown pass from one to another: 740 Park to 15 CPW to One57 to 432 Park to 220 CPS. It’s harder in office, w/ TIs and leasing jiujitsu & clandestine stake sales, to know who’s on top. But then SL Green comes along and tells you point-blank.

The REIT has sold an 11% stake in the Grand Central-area tower One Vanderbilt to Japanese developer Mori Building Co. at a $4.7B valuation ($2,700+/foot 😲) , it announced yesterday, which should make it the country’s most valuable office tower by some distance. SLG now owns a 60% stake in the property, while National Pension Service of Korea and Hines also own pieces. The 1.7M tower is fully leased (one Canuck firm reportedly agreed to pay $300psf+ for its space), the poster child for the Class A++ “tale of two cities” thesis the big boys have been touting since the pandemic. In ‘21, when SLG had done a $3B CMBS refi, Newmark est. the building would be worth $5B fully stabilized – close enough. Not much to say here, except 🫡 🫡 🫡 - might be the best execution of any tower this cycle.

Can One Vandy’s peers (Holliday would probably dispute it has any) garner similar valuations? Tishman Speyer is prepping an up to $3B CMBS refi of the Spiral, per CMA. The sponsor is touting the 2.9M sf tower as being worth $5B (not sure how), so the LTV on the debt would be 60%. On a psf basis valuation ($1,700+) though, that’s not even close.

Blackstone Shops in Soho

Blackstone’s buying 4 Soho retail joints from ASB Real Estate Investments for $200M, per TRD, which looks to be the biggest investor-driven purchase in Manhattan retail in 3+Y. The deals, for just over 130K sf w/ tenants incl. Patagonia & Amiri 🤮, pencil out to just over $1,500 a foot. Broadway retail’s been having a good run, w/ rents up 35% YoY between Houston-Broome. ASB is selling at a slight loss – it paid $204M between ‘12 and ‘16 for the properties – and wants to focus on industrial, multi & self-storage.

A lot of the big-ticket action in Manhattan retail this year has been driven by end-user purchases. Jeff Sutton, most notably, had a $1.8B (blending at a 🤩 $6K/foot) windfall in deals w/ Prada 👠 and Gucci 👛 parent Kering - you can read more about those deals, in Sutton’s own telling, here.

Tyko’s Funding Frenzy

Who needs OZK when you’ve got Tyko? The nascent debt fund, run by Adi Chugh & backed by the billions of Paul Singer’s Elliott Investment Management, is writing megachecks across the South Florida market – well over $1B in the last few months. Now, another: a $424M construction loan to Related Group, Two Road & Rockpoint for the Rivage Residences Bal Harbour, a 56-unit luxe condo project that’s generated $100M+ in sales over the past 2 months. Tyko’s also lending $527M to Related’s St. Regis in Brickell, $565M to Vlad Doronin at 830 Brickell – and that’s on top of its New York deals (Flatiron Building, Gary at 655 Madison, etc.)

Quickies

• 60 Guilders buying Invesco’s 1370 B’way at girthy discount

• Sterling Bay lands 97K sf tenant in Fulton Market - largest new lease in Chicago’s downtown this year 🌬️ 

• Chetrit refis distressed Two Bridges, kicks in more equity 🌉 

• Pacaso’s latest numbers: $36M cash on hand (raised $250M), adjusted EBITDA -$10.3M for H1 ‘24(more on the firm’s spin doctoring here) 🏘️ 

• Chicago’s CA Ventures liquidates European biz

• Canadian RE giant KingSett freezes distributions 🍁

• If you’re a New Yorker and need City of Yes deets, here’s the only acct. you need to follow 

• Sam Zell tchotchkes up for auction (h/t Pat Sisson) 🎎

• Tavalodet Mobarak: @mrkorangy - keep shining big boy 🧔‍♂️ 

Unquotable Quotes