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Dynastic Disturbance & Witkoff's Moment

Big banks ready to roar, NYC's families trim kingdoms & the CRE overexposure tracker

Author

Hiten Samtani
November 18, 2024

Dynastic Disturbance

New York’s leading CRE families are beginning to part ways with once-trophy towers

Being a New York real estate scion has historically been a cushy gig: You’re in the stay-rich business, blessed with some of the most cash-gushing (Durst’s est. NYC NOI in the early 2010s = $287M; Rudin’s $315M) and in-demand investment assets on Earth, and your job is to not screw that up. Lenders line up to fund your development quests, given your laughably low basis, and a lot of your agita comes from sidestepping family feuds & vying for elite board seats – it’s a battle for meaning rather than survival.

But in the last couple years, the equation has changed drastically, and perhaps permanently. The office towers owned by NYC’s mighty real estate dynasties are no longer guaranteed cash cows – instead, in many cases, they are hulking symbols of distress, abandoned by anchor tenants and out of favor w/ lenders. Scions used to sitting in meetings w/ the assurance that the money would keep hitting the bank are now being asked to kick some in – “Instead of 50 different aunts and uncles getting distributions, they’re getting capital calls,” is how Eastdil’s Gary Phillips put it – and are being forced to take a hard look at their portfolios and plot a viable future for their own daughters & sons.

In some cases, securing that future now involves a once-blasphemous action: sell

Dynasties (Cont.)

Over the past 24 mos, the big NY families have sold 10 office buildings, per an Eastdil estimate cited by WSJ. Compare that to the previous decade, where there were <5 such trades. “The world has changed,” Rudin chair Bill Rudin told the publication, and deep-pocketed buyers w/ ambitious overhaul plans are now in the mix. Last year, Rudin closed on the $173M ($407/foot) sale of the 30-story 55 Broad to Nathan Berman’s Metro Loft & Silverstein Properties; the partners converted the property into a 571-unit rental. This spring, Joseph Hoffman’s Bushburg paid $160M (just $133/foot 😲 ) for Rudin’s 80 Pine, which had been languishing since anchor tenant AIG bounced.

Meanwhile, the Dursts are looking to sell 675 Third, marketing it as an office-resi prospect; the Kaufman family are selling 77 Water for $95M to Vanbarton, which per CMA is seeking $275M in debt for the conversion job; and the Cohen family sold 655 Madison to Gary Barnett, who’ll be tearing it down to build luxury condos.

Getting to the sell isn’t easy. Not only do principals have to navigate recalcitrant family members, upping the risk of feuds, they also have to accept the loss of highly visible assets that bestowed a great deal of meaning and prestige – centimillionaires are a dime a dozen in New York, but not everyone owns a piece of Manhattan.

“When I go by 80 Pine Street, I remember the good times and I remember the bad times,” Rudin, who watched the groundbreaking ceremony in ‘59 from his dad Lew’s arms, said. “But you’ve got to move on.”

Banks Most Exposed to CRE

Finance prof Rebel Cole has dropped the latest iteration of his analysis of bank exposure to CRE. Using publicly available Q3 Call report data from the FFIEC, Cole crunched a lender’s exposure to mortgages and construction loans, as well as unused commitments to fund such loans. Of note: Bank OZK’s reduced its total CRE exposure:equity ratio to 566% (from 597% in Q2), w/ total equity of $5.6B compared to $31.7B of CRE exposure; you’ll recall it recently prioritized reducing its exposure and announced a new loan-syndication desk for megadeals. Then there’s NYCB/Flagstar, w/ $8.9B in total equity to $48B in CRE exposure (539%, down from 554%, and a commitment from the Mnuchin-led syndicate that’s now in charge to slash that further). Also peek Ira Robbins’ Valley Bank: $7.5B in equity compared to $33.1B in total CRE exposure (442%, down from 462%). Across the banking sector, Cole calculated aggregate industry total CRE exposure at 132% of total equity ($3.23T vs. $2.45T), down from 138% in Q2.

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Big Banks Ready to Rev Up

CRE banking’s biggest players intend to ramp up new lending activity

Meanwhile, the big banks are tiring of the view from the sidelines. Wells Fargo telegraphed that it’s planning to ramp-up balance-sheet lending in the coming year, per CMA, incl. on fatter deals & syndications. Wells, often viewed as a pacesetter for the industry, has told players it could ramp up originations by 4-5x in ‘25. In these fallow years, large-loan action has flowed to debt funds (see our Quiet Kings of Capital trilogy here) and to CMBS, where single-borrower deals made up over 2/3 of total volume in the first 9 months of the year.

Wells’ CRE banking head Nipul Patel told CMA that bank ramp-up would likely manifest in deals w/ pooled collateral properties. “I do think where we believe we have diversified risk … you may lean into that risk a little bit more than we were previously able to do,” he said. For capital-starved sponsors, that’s akin to pillow talk. 💃 

Witkoff-Trump Bromance Escalates

Editor’s note: In ‘17, I did an extended sit-down w/ Steve Witkoff on his life and maverick career - you can find it here or👇️ - HS

In a Nov. 6 piece mapping out Trump’s CRE doctrine, The Promote wrote: “Trump is at heart, always & forever, a New York real estate guy, and New York real estate guys make up a big chunk of his inner circle.” We flagged Steve Witkoff, and noted that “friends to winning candidates sometimes get a look for ambassadorships.” The very next week, Trump tapped the Bronx-born developer to be his Middle East envoy, a role occupied by Jared Kushner in Trump’s first term and given what’s going on in the region, a perch of tremendous visibility and sensitivity.

A master schmoozer w/ a long track record of striking fruitful partnerships (Jho Low excepted), Witkoff views the Middle East crisis, in part, as “one giant real estate deal,” per a new WSJ profile. (That language somewhat mirrors Kushner’s approach, and J-Kush expects to retain some influence this time around.) Witkoff was deeply involved in Trump’s campaign, but not in the shout-from-the-CNBC-rooftops manner of Newmark chair and Treasury Sec. hopeful Howie Lutnick. Instead, he moved behind the scenes – liaising w/ key donors such as Miriam Adelson, playing peacemaker w/ Georgia Gov. Brian Kemp, and bringing Florida Gov. Ron DeSantis on board after he bowed out of the race.

Meanwhile, his real estate empire has been humming along nicely: In March, his eponymous firm scored $120M, or a scarcely-believable $11K+/foot, for the penthouse at its Shore Club Private Collection in Miami Beach; this summer, its JV w/ Len Blavatnik landed a whopper $1.2B refi on One High Line (the former HFZ joint known as the XI), after booking $800M+ in sales. And Witkoff/Schrager just landed a $173M refi from Madison Realty Capital on LES’ Public Hotel, a deal that should put to bed foreclosure attempts.

Trivia: Witkoff keeps (or at least used to) a copy of Rich Cohen’s “Tough Jews” on his desk, a rip-roaring read I highly recommend.

Quickies

Unquotable Quotes

“These partnerships are almost like marriage.” 👰 
- Developer Harvey Hernandez, on bringing Two Roads into his Miami River project