Many Saints of Newark & Manhattan Strikes Back

Manhattan is still Manhattan

“The city makes up for its hazards and its deficiencies by supplying its citizens with massive doses of a supplementary vitamin — the sense of belonging to something unique, cosmopolitan and unparalleled." - E.B. White, Here is New York

Miami threadbois will have you believing it’s all over for New York real estate. That the tale from here on out will be primarily one of capital flight, loss of blue-chip tenants, crime & punishment, and the inexorable decline of America’s greatest city. But then come firms like LVMH and Bridgewater to poke holes in that theory.

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Manhattan (Cont.)

Bridgewater, the world’s largest hedge fund, has decided that it’s finally time for a Manhattan office. It inked a 60K sf lease at 295 Fifth Ave, the Midtown South office property owned by Tribeca Investment Group (Elliott Ingerman, Bill Brodsky), PGIM Real Estate and Meadow Partners (Jeff Kaplan). Bloomberg had news of the hunt earlier this month, and the Post’s Cuozzo published more deets this week. Under founder and former CEO Ray Dalio, Bridgewater had a bunker mentality, w/ all US employees working out of Westport, CT, but his successor Nir Bar Dea has been changing things up. Even as Wall Street South becomes a thing, the titans of finance are still feelin’ Manhattan – TPG is also in talks to take a huge spread at Tishman Speyer’s Spiral.

Meanwhile, LVMH 👜 just gave Midtown a huge boost w/ a deal for 150K sf at STRS Ohio’s 590 Madison, per ace CRE scribe Lois Weiss. Asking rents at the 1M sf tower, which IBM is leaving for SLG’s One Madison, were likely in the v high $100s per foot. The deal gives LVMH “swing space” as the lord of luxury redevelops/rejigs 2 spots it has on 57th St, and a deal for retail space at 590 could follow. (Fun read on how LVMH uses its RE to beat up rivals here)

And over at Vornado’s Penn 1 (fka 1 Penn Plaza), the Vivek Ramaswamy-founded biotech Roivant Sciences is taking 55K sf on the tower’s top 2 floors, per TRD. It might be run by a mayor being chased down by the US Attorney, but New York is still New York!

Pacaso’s Fractional Fakakta

Pacaso, a startup focused on second-home co-ownership, was notable for 2 things: its star-studded founders – Zillow co-founder Spencer Rascoff (inarguably a proptech 🐐) & dotloop founder Austin Allison (my ‘22 chat w him here) – and its prodigious fundraising talent - $230M from SoftBank, Greycroft, Fifth Wall, etc, w/ bragging rights for being the fastest startup to unicorn status 🦄 .

Making money, i.e. profit, however, was another matter – Pacaso has lost $150M+ in its 3Y of existence. Now depending on the macro climate, VCs may not care too much about that – if a company is growing rapidly and the vibes are right, it can still attract capital. But herein lies the problem: Pacaso’s financials show that ‘23 revenue was just $90M, down a heady 59% YoY from $219M in ‘22. Shrinkage is something that VCs most definitely recoil from. So now Pacaso is turning to everyday Americans ™️ to fund its next adventures. Through a Reg A offering, individual investors (even unaccredited ones 😲 ) will be able to buy in – the min. investment is $1K. The pitch seems to be as much a “smart by association” play as anything else – “Invest next to firms like SoftBank and Maveron” is one of the key talking points. But shimmy past the rhetoric into the numbers, and you realize how big a leap of faith they’re being asked to take.

• Live by the ZIRP, die by the ZIRP: Pacaso sold just 313 units in ‘23, down 46% from 582 in ‘22. The majority (61%) are classified as “Resales and Others,” telling you it’s struggled to grow past its OG user base/inventory.
• Cut its losses to $36M from $82M = good. A big reason for that, though, was chopping 🪵 its sales & marketing expenses to $14M from $67M. But w/o that engine + rising rates, growth got rocked – revenue plummeted 59% to $90M = bad
• Investor materials (download here) highlight ~$100M in cumulative adjusted gross profit, but say nothing about the cumulative $150M+ net loss (fair enough, best foot forward and all that). They tout a US TAM of $1.3T, but that figure includes all “transactions greater than $500K per home sold per period.” 🤷  

All that warrants a giant caveat emptor, esp. if you’re an unaccredited investor. One silver lining: You’d be investing at a $750M valuation, Pacaso confirmed, a 50% 💇‍♂️ from its Sept. ‘21 smart money round 🤲 

The Many Saints of Newark

“This is Newark, baby - we don’t play that shit!” - Little Paulie Germani

Jack Klugmann, one of the Lakewood lads doing big things in the CRE business, has been battling off foreclosure from Madison Realty Capital (more on them in our Quiet Kings of Capital feature here)  on his sizable Jersey portfolio. His most prominent project is the redevelopment of the Newark Bears 🐻 stadium, a mammoth undertaking slated for 4,200 resi units and hospitality/retail space. Klugmann’s Accurate Builders landed a $395M loan from Madison for the project in ‘21, but things went south and Madison initiated a UCC foreclosure in a bid to take the site over. However, an auction slated for Tuesday did not take place, per TRD, w/ Klugmann front-running press bombs by telling the publication he and Madison have worked things out - “We have a good relationship,” he said, alluding to restructurings & sales without giving further deets.

One elephant in the room that went unmentioned is RXR. For months now, Klugmann has been in talks w/ the Scott Rechler-led behemoth to provide a $1B+ refi on his portfolio, sources involved in the deal confirmed to The Promote. Those talks are still ongoing, a source familiar w/ the matter confirmed, and it’d be very interesting if that capital turns out to be the lifeline that lets Klugmann hold on to his prize. 🏆️ 

Capital Pains

Bombshell news out of DC: The General Services Administration has pulled the plug on an HQ for the SEC in the NoMa neighborhood, directly citing the developers’ failure to score financing for the project. “CJN has been unable to demonstrate its ability to finance construction of the building, as required by the lease, and the project has yet to proceed past the initial phase,” the GSA said, referring to the JV between Douglas Jemal’s Douglas Development & Joe Cayre’s Midtown Equities. (The kind of spice you don’t expect in govt. comms 🌶️ )

In Sept. ‘21, Cayre, a big SY guy in the New York scene (Deal junkie, obv) & Jemal, a fellow Brooklynite who made it in the capital, had landed what felt like the deal of the decade: a nearly $1.4B contract to build a 1.2M sf complex over 6 acres for the SEC, which would relocate from the Union Station area. Construction was slated to kick off in ‘22, but the developers couldn’t land the funds even by the following summer – they were hunting for a $700M floater at 85% LTC, per Bisnow, so you can imagine how pricey that debt would have gotten by now. In Oct. ‘23, the SEC bought time w/ a 5Y lease extension at its current digs, and now it’s put the kibosh on the plan. It’s a tough outcome for the DC ground-up market – if even Uncle Sam as an anchor tenant doesn’t get you funded, then what will?

Bonus: Rare interview w/ Cayre on his life & career here - kudos to the kid for landing it!     

Quickies

• Doomed tower of power: W/ all the Chrysler Building Aby Rosen/Cooper Union eviction drama, let’s revisit just how many big investors have been mixed up in (and vanquished by) that icon over the decades, from Helmsley to Zeck to Goldman to Abu Dhabi. Here’s a rundown 

• Port strike: I asked my friend @freightalley, who as publisher of Freight Waves lives this stuff, if there were any immediate CRE implications to think about. His response: “No panic… yet. A lot of materials were prestocked over past few months. If it’s not resolved by the end of the month, it’s time to panic… it could cause months of issues and backlogs.” 🚢 🚚 ✊ 

• Dermot pays $144M for 350-unit SoFla rental

• Allure’s Joel Landau (he of the Rivington House scandal) lands $155M construction loan from Valley for Bed Stuy multi 

Unquotable Quotes

L'shana tovah to those who celebrate! We’ll do a short edition Friday, which y’all can read when you emerge.