Gary doing Gary things & OZK's Newfound Caution

Gary Doing Gary Things

“I'm not Greta Garbo,” Gary Barnett once said, but among New York real estate insiders, he inspires the same level of adulation as the golden-era icon. His deals aren’t just transactions, they are harbingers, expressions of where the market might be going (worked out w/ One57, not so much yet w/ Central Park Tower), or they are the pledge before the prestige (the two 🐐 ‘d ones are the Ring portfolio and his Deer Valley/Mayflower masterclass in Utah). His stuff tends to come w/ a fascinating cast of characters, from the diamond families and Emirati and Chinese sovereign funds that have backed him, to the REIT bosses and billionaire scions that have squared up against him.

So it’s always fun when he’s in the mix.

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Barnett (Cont.)

First, Barnett’s Extell Development has bought an office property at 655 Madison from Williams Equities (Cohen family, repped by Eastdil) for $160M - the size of the building is irrelevant, since it’s a teardown job where Extell will build luxury condos – this being Madison Ave, there’s a big retail play here as well, which explains the $800+ per buildable sf.

Barnett landed $150M in acquisition financing from Tyko Capital (who else? see Flatiron sec. below). No air rights were reported as part of the deal, but if Barnett has sewn some up this gets even more interesting.

And back on Billionaires’ Row, the corridor he birthed, Barnett has bought the distressed debt on a block-through property that’s kissing a $300M+ assemblage being put together by Stefan Soloviev, the billionaire scion of the late Sheldon Solow (superb obit here). If Soloviev did want the site (115K sf buildable as-of-right, per sources, though tough-to-score transit-dependent bonuses would give you a bit more), he’d probably have to pay Barnett a nice premium for it – recall that Barnett once extracted $1,400/foot from Steve Roth at the 220 CPS assemblage through a Trojan Horse maneuver (the 17m mark in our doc w/ the B1M here - 💯 worth a watch). But Soloviev insists he’s all set, telling TRD that “I have enough square footage to do what I want there.”

As he did w/ the Ring portfolio, Barnett came upon the 57th St. deal in a sideways manner: lender Wells Fargo got sick of sponsor APF Properties (Kenneth Aschendorf, Berndt Perl) delinquent dance and began shopping the note (through Eastdil) this summer, w/ a principal balance of $50M. Barnett, per deal insiders, bought the debt at a slight premium to that balance, putting his basis in the mid-$400s/foot. Let’s see what Garbo does next 📽️     

Prudence in the Prairies

“It’s almost impossible for it to end badly.” - George Gleason, Bank OZK

Bank OZK, this cycle’s most important construction lender, says that it’s time to lay off the NOS: the bank is capping new loans at $500M, and will push to reduce its outsized exposure to CRE – over 600% of its total equity as of Q1.

“We just decided that wasn’t worth the headache of having to deal with that sort of crap, honestly,” Gleason said on OZK’s earnings call Friday, likely referring to a $900M+ life-sci loan that got it hit w/ a double downgrade in May. If it were to get in the mix on such mammoth financings in the future, it would partner w/ other lenders, through a new loan syndication desk.

Though it posted record profits (again) in Q3, it expects the streak to end as sponsors pay off loans to try and take advantage of lower rates. “Our Fed assumptions assume 25 basis point decline for the next six meetings,” CFO Tim Hicks said, per Bisnow. “So if the Fed moves slower than that, then that's a good situation for us. If the Fed moves at a quicker pace, that's more headwinds.”

A Q worth asking: How much is that $500M cap going to do for the bank, if much of its agita is from smaller loans? For e.g., it took a $21M writedown on a $128M loan to Sterling Bay at the troubled Lincoln Yards megaproject in Chicago, w/ Gleason saying that “we are growing less patient with the progress that our sponsor is making.” 💀 🕰️ And here’s a fun dive into some of its deals in Broward County.

Flatiron Gets Funded

Dan Brodsky, the Mainetti family’s Sorgente Group & Jeff Gural’s GFP now have the funds to get going on their condo conversion of the Flatiron Building, a property that has enraptured generations of real estate players and at least one performance artist.

Brodsky bought a 25% stake in the property about this time last year for $40M, after Gural’s crew took full control of the property last May at auction (but not the first auction, of course). The partners have now landed $357M in construction debt for the 60-unit conversion job, per TRD - Gural had talked about it being a $100M undertaking back in May, so this is quite an upsize - maybe that was a partial-conversion plan?

The money comes from Tyko, a JV between Adi Chugh and hedgie billionaire Paul Singer’s Elliott Investment Management that seems hellbent on ending the year as the market’s most notable new lender – $565M to Vlad Doronin in Brickell, the mezz on Witkoff/Blavatnik’s $1.2B refi on New York’s High Line, $140M to Tavros, $150M to Barnett ^ for 655 Madison, etc. etc.

Bonus: The wild history of the Flatiron Building, from Harry Helmsley to Knotel to Jacob Garlick

Merchants of Doubt

CRE’s capital-markets crisis rattled/broke everyone from the bulge bracket banks to the debt funds to the regional banks. It also brought out the short sellers, who make a living shouting “fire!” in a crowded theater. This was supposed to be their time, and we saw a rush of spicy reports on allegedly dodgy lenders, from Arbor Realty Trust (check out our chat w/ key Arbor nemesis Viceroy’s Fraser Perring here) to Axos Bank, who were taken to task for their CRE exposure and the way they went about their business. These shorts are yet to bear real fruit, but they keep coming. The latest is c/o Ningi Research, which alleges that Merchants Bancorp has put itself in a very bad place by “making bridge loans to mortgage fraudsters” and over-relying on brokered deposits. It flags Merchants’ multi and healthcare loan book, which it says has more than 10X’d in 7y ($529M to $6.6B), and says that its loan-loss provisions don’t even cover “current NPLs, let alone future rises.”

It strikes me as one of the shoddier reports I’ve seen, and that’s saying something (judge for yourself here). Much of it rests on the brokered deposits and loans to bad actors arguments – the name Puretz (i.e. Aron & Eli - catch up here) is mentioned 88 times. It also makes several assaults upon the English language: “In the Dickensian real-estate portfolios of Puretz, Green et al., there are no picket fences, but rather dilapidated hallways and broken elevators.” 🏡 

Quickies

• Effective immediately: Elliman boss Howard Lorber steps down amid tanking stock, backlash from sordid Alexander Bros. saga 

• Turnbridge bails as co-developer of Four Seasons resi project in Austin ✌️ 

• There’s a new head of CRE at JPMorgan 🫡 (Also: JPM shedding lion’s share of First Republic space in SF)

• Faena 🤠 heads to the Miami river; partnering w/ Defortuna & Shahab Karmely (aka the Persian Agnelli)

• PGIM, Citymark launch $500M multi lending JV 💸 

• Shvo sidesteps construction defects suit at Mandarin Oriental - but still mucho heat on him overall 🪖 

• DB in talks to sell ≈$1B CRE book - 40% are NPLs 👁️ 

• “An urbanism of dishonesty:” A dive into half-ass suburban placemaking 

Unquotable Quotes

Programming note: Barring any skyline-bending news, The Promote is off this Friday. We’ll see you back here Monday. We’ll be in Dubai for a fortnight, so if you happen to be there & want to meet up, just reply to this email. 🏜️