KKR's Surprise Sale & Cushman's Mayoral Menace

KKR’s Surprise Sale

This one’s a bit of a glitch in the Matrix: KKR, which rapidly became 1 of Brooklyn’s biggest rental landlords through a $1.3B+ spending spree, had a change of heart on at least one of its bets: The firm just sold 80 DeKalb in DoBro to Atlas Capital, per TRD. The sale price was $202M, compared to KKR’s $190M purchase price in summer ‘22, but that kind of piddly profit is not why mega-allocators like KKR get up in the morning, so insiders believe there’s more to the story. 🐊 

KKR (Cont.)

Here’s the chatter: The fund through which KKR made that particular deal needed liquidity, and so KKR, which owned the asset in partnership w/ Dalan Management, pushed for the sale. KKR had put in the bulk of the equity, so that + their share of the profit is a decent sum back to them for whatever they’ve got planned. For Dalan, which managed the asset, this seems like a less juicy outcome. They have a partnership w/ KKR across its Brooklyn portfolio (incl. the whopper Bruman package), though, so there’s plenty to keep them busy.

Brief word on the buyer: Atlas (Jeffrey Goldberger, Andrew Cohen) is in the mix on 2 intriguing deals this year: it owned the mezz on a chunk of the Caiola portfolio that Andrew Farkas’ Island Capital & JW Capital Management took control of last month; and it’s partnering w/ the Zeckendorf bros & Baupost on an ultra-luxe Hudson Square waterfront condo project that recently nabbed a whopping $985M loan for (the lenders were Cale Street & Farallon - more on them here)

Elsewhere, KKR, whose RE unit is led by Ralph “fear is a friend” Rosenberg, has been making huge bets on MF, including the 5,200-unit Quarterra portfolio this summer. That $2.1B deal enraptured the market and catalyzed the listing of other major packages, incl. Greystar’s “Project Freedom” – The Promote reported earlier this week that a chunk of that portfolio is being bought by Max Peek’s Magnolia Capital.

Life is for Lending

Take that, CMBS: A lifeco has just pulled off a whopper financing of an industrial portfolio, the type of deal that even a year ago seemed destined to be securitized. Megadeveloper EQT Exeter, led by Henry Steinberg, is buying 64 industrial properties across the US, and landed $570M to finance the acquisition from New York Life Real Estate Investors, per CO. The 5Y, fixed-rate loan was brokered by CBRE, and the portfolio spans just under 7M sf. The NY Life division that did the deal is headed by Mark Talgo, and has about $66B AUM.

For a long time, lifeco lending sort of capped at $150-$200M, but this year, they’ve been “roaring,” 🦁 as a source involved in these deals put it, jockeying for primacy even for deals in the $500M+ range, and going toe-to-toe w/ CMBS on the most competitive financings – PGIM recently came close to landing a mammoth industrial refi, but lost out to JPMorgan, and lifecos made a big push to fund a $638M SASB deal for EQT this summer.

A few reasons for this surge: private equity has been ramping up in the lifeco space, either through acquisitions (KKR-Global Atlantic) or by being their source of growth capital. Some lifecos are also carving out a chunk of capital to create debt-fund like vehicles, sources said. Those funds like to play in spaces they find warm & fuzzy, like industrial, but within those spaces they are hella competitive.

Cushman Bigwig Caught up in Mayoral Scandal

The city of New York is perennially NYC’s largest commercial tenant. While the city’s mayor Eric Adams is facing a federal corruption probe, a new investigation led by the Manhattan DA is looking into its leasing activities, per the Times: As part of the probe – tackling bribery, money laundering, and other assorted high-jinks – investigators seized the cells of at least 5 people, including a top-ranked Cushman dealmaker 📵 

The broker, vice chair Diana Boutross, had her phone seized Sept. 27 at JFK, when she was returning from a Japanese vacation she took w/ the mayor’s chief adviser, Ingrid Lewis-Martin, and NYC’s top RE official, Jesse Hamilton, according to the publication. Boutross and Lewis-Martin are pals, but Boutross manages Cushman’s leasing assignment with the city’s Hamilton-led RE division. 🤷 

Important to note here for the uninitiated that “vice chair” is not a managerial position in CRE; rather, it’s a ceremonial title for a firm’s biggest rainmakers (CRE’s obsession w/ lofty titles is a rabbit hole we can’t get into atm). What’s interesting here, though, is Boutross’ background – she came over to Cushman in ‘15, after a 15Y stint at Jeff Winick (a true character)’s Winick Realty, which means her jam is retail - and what is a retail specialist doing managing a giant office and industrial leasing account for the city of New York? 🗽 

A Cush spox told the Times that after Boutross came over to the firm, she acquired more office and mixed-use chops, and that she stepped into the assignment to replace a retiring broker. The spox added that Boutross is NOT the sole dealmaker on the account, although the Times reports that she represented herself as such.

This kind of thing is a brokerage’s worst nightmare – they’re there to facilitate the show, not to star in it. Recall that Cushman was also embroiled in NY AG Tish James’ crusade against Trump’s portfolio, over appraisals it performed at 40 Wall & other properties.     

Prop 33’s Catch-22

San Francisco seems destined to one day became an HBS case study of how to pulverize a city’s real estate market. As it stands, only buildings constructed pre-’79 are subject to rent control, but a new ordinance (unanimously passed) would move the cutoff date to ‘94, adding another 16K units to the program.

“Like it or not, rent control is on the ballot,” Supervisor Aaron Peskin, who authored the ordinance and is running for mayor, said Tuesday, per the SF Standard. “And this is a chance for us, who say we are advocates for renters, to commit to expand protections.” (Peskin had initially tried to expand the cutoff to 2024 buildings, but relented after pushback from developers, labor groups and housing activists who argued that would halt new construction and make projects unviable.)

There’s a juicy catch, though: the ordinance can’t kick in unless Costa-Hawkins, a state law that governs rent control, is repealed by voters this Nov. through the passage of Prop 33. Statewide ballots to kill Costa-Hawkins failed in ‘18 & ‘20. For a nifty overview of the groups bankrolling the Prop 33 battle, check this out.

Last month, SF passed an ordinance that banned the practice of algorithmic rent-setting, i.e. the practice of using software such as RealPage to help landlords determine pricing. (The RealPage federal antitrust battle is IMO one of the biggest MF stories of the cycle, and something we’ll be covering extensively in coming weeks.)

Putt Option

“It's such an exciting athletic sport! Whack the ball, get in the cart… whack the ball, get in the cart.” - Robin Williams 

Brookfield is in advanced talks to sell the PGA National Resort in Palm Beach Gardens in a $425M deal, or a hefty $1.3M/room, per Bloomberg. The buyer is London-based Henderson Park. Brookfield paid $218M in ‘18 for the resort, which includes a championship with the notoriously tricky Bear Trap, and kicked off a big reno.

The economics of these golf projects are a bit of a mystery to me. Demand to play is through the roof, but they’re not cheap to run, and I wonder how big of an upside investors think there is. Henderson Park also coughed up $705M – $1M/room – for Blackstone’s golf-centered resort in Phoenix in January – Blackstone had bought it from Singapore’s GIC for $403M - $572K/room – in ‘18.

Quickies

• Aimco selling Miami rentals for $204M 

• Vanbarton buying Archdiocese’s NYC HQ in office-resi play ✝️ 

• Desi boys: Thakkars of Texas buy UBS NYC skyscraper for $8.5M (auctioned on Ten-X 😭 - more here)

•  Tides aborts Phoenix multi deal after equity backs out 🙃 

• Another bank comes for Shaya Prager (also see: Lads of Lakewood)

Unquotable Quotes

On my mind: After Freddie let Meridian out of the penalty box (albeit w/ potentially crippling conditions), will Fannie follow suit? And what will that look like?