Divine Dry Powder & Regional Bank Wildcatting

Divine Dry Powder

How do you compete with an institution that has 17M LPs, buys all-cash and has an investment horizon of the Second Coming?

With a $100B investment arsenal (tithing is a beautiful thing 🤲 ), the Mormon church has amassed one of the most significant RE portfolios in the country: per a ‘22 watchdog investigation, it controlled more than 1.7M acres valued at least $16B, everything from office towers to megamalls to residential skyscrapers. Its ambitions extend well outside its home state of Utah: recent head-turners in Florida include a $174M industrial megadeal in Miami-Dade and a 315-unit rental in Plantation for $133M ($420K/door).

Unlike most other deep-pocketed nonprofits though, it seems the Mormons run a tight ship: investors may not be watching, but God is, so things better get done on budget and in the latter day.

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Mormons(cont.)

“As caretakers of sacred funds, we invest in responsible, reliable, and revenue-generating properties to support the Church’s mission,” Property Reserve, the church’s CRE arm led by Ashley Powell, states on its LinkedIn page, and conversations The Promote had w/ those who observe its RE activities support that claim. “They’re almost like a retail builder,” noted one source, w/ templated floor plans for projects and a missionary zeal for cost-cutting: landing a service contract on a Mormon construction project may seem like a big coup, but these ain’t the padded gigs that builders yearn for – margins are razor-thin. On acquisitions, Property Reserve (associated entities: Utah Property Management Associates, Zions Securities Company) puts a premium on location: the Miami-Dade industrial deal, for example, is just a few miles from the city’s international airport, while monthly rents at the Plantation apartment building can exceed $4K. It’s also made bets on emerging asset classes like built-to-rent.

Unlike the fund-y funds it’s now often competing against, the church has no deployment pressure and doesn’t use leverage. Bankrolling its activity is Ensign Peak, the church’s secretive and phenomenally successful investment fund, which grew its AUM from $40B in ‘12 to $100B by ‘19. One of the fund’s supervisors told WSJ that the fund aimed to provide the church sufficient financial cushion to continue its charitable and evangelizing works even if we see a repeat of ‘08.

To borrow former church president (and US Secretary of Agriculture) Ezra Taft Benson’s poetic phrasing: “The objective, of course, is spiritual. We live, however, in a material, physical, temporal world.” 🙏 🙏 🙏 

Fortress’ Multifamily Wildcatting

Fortress’ Joshua Pack had called his shot back in February: “The underlying stress here is just so big,” he said of the CRE regional bank crisis, “that they’ll eventually get to a point where they’re just going to have to utilize private capital to clean up the mess and recapitalize the system.”

He was bang on: first came Steve Mnuchin’s crew to pump $1B into NYCB, and now it’s Fortress’ turn to ride in on the white stallion: The firm, a major player in CRE distress, is leading a $228M investment into First Foundation, a struggling Texas regional bank w/ outsized exposure to one of the most heartburn-inducing asset classes: California multifamily, some of it subject to the state’s revamped (landlords would say “draconian”) rent-regulation laws.

The rescue financing buys the bank time to sell off certain loans, per WSJ: RE loans made up 72% of the bank’s deal volume in Q1, and nearly ¾ of its activity was CA-based.

Fortress’ $115M investment gives it ownership of a quarter of the bank, while hedge fund Canyon Partners’ $46M gives it about 10%. This is not a small bank btw – it has $14B in assets. It was 4th on a recent analysis of banks most overexposed to CRE as a ratio of its total assets (590%). Dime Community Bank topped that particular list (654%), w/ Bank OZK placing 2nd.

WeWork’s ReOrg Fee-ding Frenzy

“Conscience do cost.” - Butchie

The final tally for WeWork’s bankruptcy restructuring is in: the lawyers, I-bankers and assorted apparatchiks have billed $111M for services rendered during the 7-month period. That seems like a monstrous amount for a company valued at just $750M post-bankruptcy (RIP $47B peak val), but worth noting what WeWork pulled off during the reorg: It cut future lease obligations by $12B, shed $4B in debt, scored $450M in funding, and ended up with an adult owner in Anant Yardi.

Who made the most bank? Per a crunch by the FT’s Sujeet Indap, it was law firm powerhouse Kirkland & Ellis, which billed $46.4M. I-bank PJT Partners billed $22M, and Paul Hastings $13.9M. Even the tax folks felt the love, w/ Deloitte Tax billing $6M.

(Bonus: Few words on WeWork’s new CEO John Santora here. And for the definitive summer read on WeWork’s Neumannatic rise & fall, check out “The Cult of We”- my review here.)   

Quickies

•  FTC’s noncompete ban in limbo after court challenges (Catch up on CRE implications of such a ban here.)

• Gary! 🐐 Extell lands $1.2B refi from JVP on UWS luxe condo

• PGIM lender on $148M refi of JPMorgan’s Miami rental (Need to write more on lifecos. soon - becoming a bigger force in the capstack)

• Washburne’s HP Village buys Kansas City mega shopping center for $175M, plans luxe glow-up (Macerich/Taubman JV paid $660M for it in ‘16 😅)

• DR Horton buys ≈100 acres of Homestead farmland for 1,200 unit project 👩‍🌾 🐄 

• MetLife forecloses on Starwood’s El Segundo office for $73M

• Inside a Monaco billionaire’s bet on California jewel Carmel 🌊 

• NYC developer Brandon Miller dies at 43 

Class-Action Warpath

A bellwether case for Big Landlord is playing out in NJ: tenants at two Equity Residential towers have filed a class-action suit against the multifamily giant, alleging that they’ve been overcharged $140M over 2 decades of illegal rent increases, per Patch. They’re seeking $700M+ (treble, punitive) in damages 🤯 

Tale of the tape: Jersey City’s Rent Leveling Board ruled in ‘22 that one of the towers, Portside West, was subject to local rent control, and extended that status to Portside East the following year. The rulings raised the specter of rent rollbacks, and EQR sued the city over their constitutionality in November. Tenant associations fired back w/ a suit to enforce the rent board’s ruling – both cases are ongoing.

Interesting nugget: at the time of the ‘22 ruling, EQR had explicitly said it uses rental-pricing software (i.e. RealPage) in lease negotiations – that practice is now coming under cannon fire 💣️ – catch up here and here.

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