Inside Texas' Vanishing Property Tax Rolls & Dimon's Byte-Sized Delights

Inside Texas' Vanishing Property Tax Rolls

This week, a group of concerned Texans (i.e. businesspeople & lobbyists) met w/ Rep. Gary Gates to discuss one of the thorniest issues in state politics today: Traveling HFCs, property-tax absolving 🤲 vehicles being used by multifamily players as lifelines on their most troubled deals while putting a permanent dent in city coffers. A new bill to determine the fate of the vehicle is doing the rounds in the legislature, and so now’s cattle-trading time, w/ champions of the loophole squaring up against those who think it’s an abomination.

One enterprising person in the latter camp went to the meeting armed w/ a straightforward but damning tally: a list of properties that had availed of the loophole since late August, adding up to ≈ $2.7B in assessed value and $55M in property taxes in ‘24. Those properties, many of them w/ household-name sponsors, are now off the tax rolls in cities such as Dallas, Houston, and Austin, potentially forever, so the tally was an illustration of the damage that’s already been done.

But even spicier was the 2nd piece of the analysis, a copy of which was shared w/ The Promote: someone had figured out the naming conventions used by new Traveling HFC entities, sponsored by far-flung jurisdictions such as Pecos County, Maverick County & Pleasanton. That tally shows hundreds of in-progress Traveling HFC entities tied to properties in major cities, illustrating the mad rush to get the tax break while the gettin’ is good. 🏇 🏇 🏇 

The message to lawmakers was clear: Fix this now, or be forever screwed 

HFC Gold Rush (Cont.)

The list – easily cross reference-able through property records and news clips – shows that some of the state’s most prominent investors have tapped into the program. TDI has used the Pecos HFC, for example, on projects such as the 346-unit Jefferson North Collins in Arlington, where the property-tax bill last year was $1.7M, per the analysis – the property was built by JPI, which sold its multifamily unit to a Sumitomo Forestry America-led group in late ‘23; TDI is owned by JPI’s former owners Bobby Page, Ron Ingram and Brad Taylor. Post Investment Group (Jason Post) has used the Pleasanton HFC on a 240-unit Houston project called Cityscape, where the tax bill was just shy of $1M. Robb Bollhoffer’s 29th St. Capital has used the Maverick County HFC on Villas at Hermann Park, a 320-unit project that had a $1.2M tax bill last year. Many of the investors connected to properties on the list have been repeat users of the program.

A couple more juicy ones: A Walker & Co., a company founded by former Arbor Realty Trust employee Austin Walker that took over a Houston portfolio after Jay Gajavelli’s Applesway Investment Group 😎 defaulted on an Arbor loan, used the Maverick County HFC on the 1,300+-unit portfolio, which had a total property-tax bill of $2M+ last year, per the analysis. (“They get traveling HFCs to try to get above water, one player active in the market said of A. Walker. “I toured the deals, they are in horrific shape.” 👻 ) And then there’s the poster child of syndicators, Tides Equities, which used the Pecos HFC on the 272-unit Tides on Westcreek in Ft. Worth, which had a tax bill of $600K+ last year.
 
You can download the full list below 👇️ which includes the newly formed entities. It should be fairly easy to search the addresses & connect them w/ the owners – we chose not to do it here b/c forming an entity doesn’t definitively mean a deal is going to happen.

Remember that property taxes are generally the single biggest expense for CRE investors in TX. Doing away w/ them can supercharge NOIs and salvage even “dogshit deals,” as one investor put it to me 🐕️ . The reason there’s such a strong reaction to Traveling HFCs from some industry players is that the backlash against them is so strong (the headline here gives you a sense) that it could impair the ability to even do in-jurisdiction HFC deals, which builders argue are essential to create more affordable housing in cities. “[Traveling HFCs] make it harder to do new projects that would actually lower the cost of housing – it sucks,” said John Drachman, co-founder of Waterford. “Local jurisdictions should have local control over property-tax exemptions.”

Correction: A previous version of this post misidentified the ownership entity on Jefferson North Collins.  

Dimon’s Byte-Sized Delights

How enamored is CRE w/ Jamie Dimon rn? Not only did he set a glorious precedent for office landlords by ordering his troops back to the office 5x/week, his JPMorgan is now funding one of the industry’s biggest data-center bets: A $2.3B loan for a 206MW project in Abilene, TX, being developed by Blue Owl Capital, Crusoe Energy Systems and Primary Digital Infrastructure. The owners had already secured Oracle as a tenant, per Bloomberg; Larry Ellison made a nod to the project in a White House appearance Tuesday. The sequence of events jives w/ what Blackstone’s Jon Gray had recently said about such megaprojects – they’re impossible to pencil out on spec, and if you’re able to score sufficient access to power (the biggest constraint w/ these things), you’ll have your pick of blue-chip tenants.

Robert’s Rules of Order

Former Suns owner 🏀 Robert Sarver is building quite a portfolio of hulking office complexes on the cheap. Sarver, who was reportedly pressured to sell the Suns in ‘22 in the aftermath of an ESPN investigation into his conduct, formed CRE investment vehicle 3Edgewood the following year and has made a number of splashy purchases: He reportedly paid $580M for State Farm’s 2.2M sf regional campus in DFW in late ‘23 (Sellers Transwestern & Mirae had paid a whopping $800M in ‘16), and teamed up w/ Parkway on a 3M sf office purchase in Houston. Now, he’s bought the former Groupon HQ in Chicago from Sterling Bay for $89M ($56/foot!), per Bisnow & CoStar, the city’s largest office building to trade in a couple years. Sterling Bay & its equity partner JPMorgan Asset Management got rocked on this property, which they paid $510M ($319/foot) for in ‘18, as did their lender, Morgan Stanley, which per CoStar was still owed $374M. (Many such cases in the Windy City, unfortunately - see Beacon’s war w/ CMBS bondholders as well as this 📹️ breakdown of the mega-distress in the city’s office-backed CMBS)

"We are one of the crazy people buying office buildings," 3Edgewood’s acquisitions head Jordan Mellovitz told CoStar in ‘23. "We believe, long term, if we own the right assets — with newer vintage buildings in a vibrant, mixed-use environment where a lot of tenants want to be — in the right markets that the office world will come back."

Nussbaum Update 💼 

Here’s what’s happened since we last wrote about embattled CRE attorney Mark Nussbaum - recommend getting up to speed here if new to this b/c he’s at the nexus of a lot of in-the-news characters.

• Seems like Blueberry Funding (most likely Abraham Miller) has pulled papers on a case against Mendy Steiner - Nussbaum notarized Steiner’s signature in the court docs (more on Steiner here)

• Nussbaum tapped Ethan Kobre, the attorney handling escrow disputes on his just-shuttered firm, to also rep him in the case brought by Jacob Sod alleging $15M missing in escrow: Kobre comes in off the top rope w/ this brief: "Plaintiff [Jacob Sod] cannot have the upside of an investment w/ the certainty of an escrow and the predictability of a loan. It must pick a lane." 🛣️ Sod’s motion for an injunction has been adjourned to V-Day ❣️ 

• Brooklyn developer Harry Einhorn looks to have also pulled the suit he filed against Nussbaum alleging $7M in missing escrow funds
  
  We’ll have more when there’s more, which I suspect will be soon. ⏳️ 

Quickies

• 🎥 Fear and Loathing in One Battery Park Plaza 🚑️

• Aby’s ex-partner on the Chrysler Building arrested in Austria 

• After kicking Sterling Bay to the curb, Ken Griffin partnering w/ Related Cos. on Miami HQ (more on the House of Griffindor here)

• 🗽 Public Advocate to wrongly listed “Worst Landlord:” We’ll fix it next year 🤷‍♀️

• Everything must go: 800+ Chicago lots for sale after bankruptcy case 

• Some action at Nathan Berman’s distressed office-resi project at 20 Broad – unclear if this is a lender takeback or sth else

• Blackstone lining up $950M CMBS (GS, BMO, Barclays, DB) loan for Sunbelt industrial package 🍱 

• Lutnick’s Cantor Fitzgerald the buyer of a chunk of NYCB’s 🗽 loans

• The unintended (though sadly predictable) consequences of California’s price-gouging law in the wake of the LA wildfires 

• 🏈 Tom Brady’s $150M Indian Creek manse price tag a perfect illustration of the ultra-luxe market’s “parallel universe” - listen here 👂️ 

• Another trip down the Shaya Prager 🐰 🕳️ - this time in NYC 

Unquotable Quotes