Goldman’s Matryoshka Moolah & Syndicator Loophole Flagged to AG

Goldman’s Matryoshka Moolah

At its best, CRE is this intoxicating blend of carpet salesmanship & high finance. The Promote is always scouting for the latest innovations in the latter, with an 👀 toward their industry implications. Today, we’re thrilled to have Hunter from the delightfully wonky Lewis Enterprises break down a novel bond instrument for us. Enjoy- HS

By Hunter Hopcroft 

Goldman Sachs is adding another layer to the PE leverage cake, one that CRE is sure to line up to sample. 🍰 

The firm just sold a first-of-its-kind $475M bond offering backed by capital commitments, per WSJ. Call lines, aka subscription lines, are loans to PE funds backed by the underlying LP capital commitments. The funds use these loans to make investments before calling investors’ capital, thereby juicing returns by shortening the window between when capital is called and when investments begin generating cash flow. Goldman’s offering bundles these loans into an asset-backed security.  

Capital commitments are contractual obligations of usually institutional LPs, and defaults on them have been rare/nonexistent. In March, Reuters reported on Goldman’s intent to make more noise in the $800B–$1T subscription line market, left neglected after the demise of Silicon Valley Bank, First Republic, & the sale of Credit Suisse to UBS. Goldman itself picked up $15B worth of capital-call loans from the embers of Signature Bank.

Goldman (Cont.)

On this bond, Goldman is restricting the collateral to private credit, PE, infra funds, and, yes, CRE (read: no VC) from managers w/ $20B+ AUM, per Morningstar. The initial collateral pool includes 27 sub line facilities from nearly 2 dozen managers backed by 4K+ LP commitments. The ratings agency blessed the $450M sr. tranche (priced at SOFR + 1.35%) w/ a AAA rating, while the $25M jr. tranche (SOFR + 1.6%) got a AA. Blackstone, which has shown a taste for creative financings  – consider its “metaphorical lockbox” bet on AI chipmaker Coreweave – bought a $25M equity stake in the deal. 

Letting only blue chip shops play drove the pristine rating and, in turn, lowered the yield on the offering – as of late ‘23, spreads on sub lines were closer to 300 bps. The tighter spread here likely creates meaningful value for Goldman, which plans to recycle offering proceeds into more such deals. 

The timing here is tasty: Through August, dry powder in the bond’s covered asset classes stood just shy of $3.5T, per JPM. The potential reprieve in interest rates may spark increased deal flow, which in turn would push called capital through to bondholders. In a hotter dealmaking environment, Blackstone’s $25M million flyer would perform even better as senior tranches got paid down.

Who buys such a bond? Well, probably other credit funds in which those same underlying LPs are already invested – i.e. institutional investors buying a securitized form of their own credit. 🪩 

In the ouroboros of modern finance, they call that value creation. - Hunter

Reminder: Readers of The Promote get 40% off annual subs to LE here.

Attn. Texas AG: Key Syndicator Loophole Flagged

We dove deep into traveling Housing Finance Corporations last week – i.e. how does a rando entity in Garland or Cameron County pull properties off the tax rolls in places like Houston, Austin & Dallas? Multifamily syndicators w/ “dogshit deals” have made a beeline for the vehicles, as they absolve them from property taxes, sales tax on building materials, and even set them up to score the holy grail of cheap financing: muni bonds. As you can imagine, jurisdictions being deprived of their spoils are pissed, and politicians w/ juice are starting to take notice.

On Oct. 2, J.M. Lozano, Texas Rep. for District 43 and chair of the House Committee on Urban Affairs, along w/ his colleague Gary Gates (District 28, vice 🪑 ) wrote a letter to the powerful Texas AG, Ken Paxton, requesting his guidance on the traveling HFC issue. “We are aware of current efforts by certain HFCs and private developers to do these types of deals based on advise [sic] of counsel that such deals are permitted by the Act and do, in fact, create tax exemptions on property outside of the geographic boundaries of the sponsoring local governments of the HFCs,” they wrote in the letter, a copy of which was reviewed by The Promote. The lawmakers compared the situation to the traveling Public Facility Corporation loophole, which the state legislature did away w/ last year. “It now seems that some private developers are turning to [HFCs] in an attempt to avoid the restrictions under [PFCs],” they wrote.

Lozano & Gates are asking Paxton for clarity on 2 things:

1. Should HFCs be allowed to travel – i.e. be able to do their thing outside of their local govt’s jurisdictional boundaries? 🐎 

2. If HFCs are permitted to travel, should the properties they work on outside their jurisdiction be eligible for a 100% tax exemption?

Paxton’s word on the matter will carry great weight. If he deems that traveling HFCs were set up contrary to state law, it could open up room for cities to sue them (and syndicators) to put the properties back on tax rolls. There’s an expectation that the loophole will be closed in June ‘25 (the Legislature meets only once every 2Y 👏), but if the vehicles are deemed illegitimate to begin with, there could be wars even over properties that already made the cut. 🤠

Read more: Inside Syndicators' Favorite Housing Loophole

Gaffers of Gowanus

“I wake up every morning and I think, ‘You know what, I’m a lucky bastard.” - Aby Rosen

Aby Rosen insists that his leverage problems can be put to bed without having to sell (or be evicted from) his Manhattan trophies. For the rest of his portfolio though, it’s vaya con dios. First we had the sale of 980 Madison to Michael Bloomberg, a $560M deal done at a miraculous price tag of $2,700+ per buildable sf. Then we had the W South Beach deal w/ the Reuben Brothers at a $400M+ valuation. And now, Aby’s RFR is in contract to sell a major parcel in Gowanus for $160M+, a timely bit of business given that Madison Realty Capital & Marvin Azrak’s Maguire Capital had picked up the property’s distressed debt a few months ago and were eyeing a foreclosure.

The buyer of the Brooklyn dev site at 175 Third Street, per TRD, is a JV between Tavros Capital (Nicholas Silvers, Dov Barnett) and Sam Charney’s Charney Cos, a partnership that’s already got a hefty interest in the area: it’s developing a 668-unit project at 310-340 Nevins (scored $300M in construction debt from Affinius/Kennedy Wilson/Tyko) & a 260-unit joint at 251 Douglass and is kicking off leasing at the 216-unit 585 Union, all projects leaning hard into the yuppie hipster aesthetic.

When the deal w/ Aby is done, Tavros & Charney will be the true gaffers of Gowanus, with about 2K units built/in the pipeline. That’s conviction.

Meridian Loses a Baker’s Dozen

Unlike Jerry Maguire, he didn’t leave with just the goldfish and the secretary 🐡 

News just came in of another Meridian exit, and it’s a biggie: Per CO, rainmaker Morris Betesh is decamping from the bruised mortgage brokerage giant with all 12 of his guys to form a new firm, Arrow Real Estate Advisors. “We’re a 13-person team, we’re fully intact, and we’re super excited about our potential growth and the market impact we can make,” Betesh, whose team historically does $5B/Y in debt deals per CO, told the publication. 🏹 

The Promote has written heaps about some of the biggest Meridian exits since Freddie Mac blacklisted the firm last year: David Brickman, Yoni Goodman, Seth Grossman, Ronnie Levine, etc. etc. What’s curious about the Betesh departure is that it comes right after Freddie’s decision this month to reinstate Meridian – albeit w/ conditions (repurchase rights, enhanced reps & warranties) that sources believe will make doing deals through the firm too expensive/onerous. So the Q becomes

1. Had Betesh already decided he was out, but waited till Meridian was officially back in the game so he wouldn’t be leaving under a cloud? 

2. Did he want to wait & see what the Freddie reinstatement conditions would be before making his decision? And when he saw how intense they were, decided it wasn’t worth it to stay on?

Quickies

• The Promote’s got a guest column in Bloomberg today - on Abu Dhabi’s private credit CRE ambitions 🥹 

• RXR brings in HBC on 620 Sixth recap; lands $320M loan from GS/BX 

• CIM forecloses on IBM’s former Village digs (once owned by Adam Neumann 😍 - fun backstory here)

• Capital flight: Brandywine CEO says “we got to get out” of DC 🦅 

• Pimco shakes up real estate C-suite 💼

• ASB set to list downtown SF retail property for $340/foot- less than half what it paid 

• Gary! Extell pays $160M for Madison Ave site in luxe condo play (promise I’ll write more about this one soon)

• CMA had the Tishman Speyer $3.5B Rock Center refi scoop a full month ago - not sure why everyone is reporting it now… read the trades if you’re on the beat!

Unquotable Quotes