Multi Nipponomics & Shvo Parliamentary Pull-Ups

Shvo Backer’s Parliamentary Pull-Up

When it comes to their US CRE bets, overseas institutional investors usually like to set it and forget it. They want to fund the most buttoned-up sponsors and brandiest-name assets, then bask in the glory of walking past their trophy towers on jaunts to Manhattan or Chicago or San Francisco. Indeed, that’s the fuzzy feeling BVK, Germany’s largest pension fund, expressed in an annual report, calling its $650M buy of SF’s Transamerica Pyramid “the most spectacular real estate acquisition that BVK achieved in its 20-year history of investing in real estate outside of Germany.”

The impresario spearheading that wager, and $2.5B-ish worth of other trophy deals, was Michael Shvo (no buttons – black muscle tees only). And it’s that association that now has BVK facing heat from lawmakers back home.

BVK (Cont.)

“According to media reports, the Bavarian Ministry of the Interior's supreme authority Versorgungskammer (BVK) invested high three-digit million amounts directly or indirectly in luxury real estate in the USA, which was developed by a convicted tax evader [i.e. Shvo],” Bavarian Parliament officials said in a letter, per Bisnow, re. to damning reports by German publication Abendzeitung. “High losses are looming, forcing those responsible at BVK to explain themselves.” 👩‍⚖️ 

“I want to find out what kind of control mechanisms the Ministry of the Interior uses to check and, if necessary, prevent risky investments,” Bavarian MP Tim Pargent (campaign slogan: ItsTIMtochange 🫡) told Bisnow.

BVK bankrolled Shvo’s spending spree – on properties such as Chicago’s Big Red, NYC’s Coca-Cola Building 🥤 and ultra-luxe ground-up projects in Miami Beach, Manhattan and Beverly Hills – through its investment manager, Deutsche Finance. The pension had already taken pains to distance itself from Shvo, saying in the summer that Deutsche Finance works w/ Shvo on a “project-related basis,” rather than describing him as a partner/driver of their biggest overseas bet. BVK also independently hired Corcoran to do a market study at NYC’s Mandarin Oriental, where sales have been sluggish.

The JV’s investments “have outperformed the broader office market,” a Shvo spox told the publication, claiming that “the value of our commercial portfolio has increased by hundreds of millions of dollars, a result of dramatic rent increases that we have achieved by repositioning these assets.” At least in some cases, this statement is demonstrably false - at Big Red, for e.g., Shvo paid $376M in ‘20 (compared to $108M ‘16 price), the tower has $240M CMBS on it, cash flows are down, property taxes are up, and the anchor tenant has been doing layoffs. In August, unsold condos at the Mandarin Oriental Residences Beverly Hills went up for bulk sale after a default. At Transamerica, frou-frou Core Club is trying to exit its lease, slamming Shvo for spinning “tales of grand expansion.”

Pensions hate this kind of drama. Recall how Abu Dhabi’s Mubadala got wrapped up in the 1MDB (Jho Low) scandal, and suspended deals w/ Goldman until all that litigation was resolved.

Bonus: Misadventures in mezz - a Korean investor story Pt I and Pt II  

Nipponomics

The kind of platform deal that builders dream of: Daiwa House, Japan’s largest homebuilder, is eyeing a $500M investment in Alliance Residential, a major Scottsdale-based resi developer, per Bloomberg. Alliance has built/acquired 115K units since its inception, and a deal would give Daiwa exposure to U.S. market-rate rentals, workforce housing, sr. housing, build-to-rent & industrial, assets Alliance runs under various brands.

Alliance is led by Bruce Ward (interesting if puffy profile of him here), who cut his teeth at Trammell Crow (of course!), which throughout the 90s spun off regional satellites, incl. BRE Properties. In ‘00, Ward and some other enterprising fellas bought PM firm Alliance Apartment Communities from BRE and turned it into a development machine. In ‘20, Alliance sold its management business (130K units by then) to Greystar for just under $200M, all-cash.

As the Japanese population continues to decline, builders have to seek out more fertile pastures abroad. Daiwa’s closest competitor, Sekisui House, made an even bigger push into the US at the top of this year, buying homebuilder MDC Holdings in a $4.9B all-cash deal. Sumitomo Forestry 🎋 is another firm in the mix: it aims to build at least 10K units annually in the US for the next 3Y, w/ a Sunbelt focus.

Bonus: Trammell Crow - the best example of real estate’s Paypal Mafia 

Billionaire VC Dreams of “Boom Loop”

Billionaires are generally jonesing for their names on some rando wing of a museum or cultural institute, but Neil Mehta is up to something more interesting, and potentially far more meaningful: the investor and founder of VC firm Greenoaks is the sole backer of a $100M plan to revitalize SF’s Fillmore Street. A Mehta-funded vehicle has bought up half a dozen aging buildings on Fillmore between Clay & Pine streets and is offering below-market leases to tenants (F&B emphasis 🥘 )interested in being part of the area’s renaissance, Mehta wrote in an SF Standard op-ed. He took a shot at articles that painted his effort as a “sinister plan” to uproot legacy businesses, such as this classic case of NIMBY reportage from the Chronicle, which was followed by Board of Supervisors prez Aaron Peskin saying he was looking into implementing citywide zoning controls 🙃 .

Mehta wrote that his “real-life plan is the opposite of what I’ve been accused of.” He noted that he has no ownership in the vehicle, and will have no upside from any rising property values as a result of the efforts – contrast that to more capitalist bets on SF’s struggling property market like those by franchise king Greg Flynn and RE scions Jim & Melinda Ellis.

Bonus: A Reichmann runs it back - inside Project Uris     

Mustang Barry

News on another Sumitomo (Mitsui Banking Corp.): The firm just did a $115M loan for 1 Hotel Brooklyn Bridge Park, per CMA. Not a deal The Promote would usually care about; however, the sponsor here is the bizarro Barry Sternlicht family office-sponsored SPAC, Jaws Mustang. Sternlicht’s Starwood, which developed the 194-key hotel w/ Toll Bros., rolled it and 9 other hotels into the SPAC earlier this year. At its birth, Jaws Mustang had no assets except for its $23M cash, but was valued at $300M 👏, something we broke down w/ Hunter’s help here. At the top top, it’s all financial & media engineering, and Barry’s a certified 🐐 of that game.

Quickies

• Office distress now kissing 15%; up nearly 3x over 18 mos

• Pair with: High-end, new build (should we call it Class A++?) office is performing beautifully, say those building it (media nerd tangent: this kinda trend piece, with bigwigs gushing about their own projects, is a classic of the trade pub genre)

• Google renews 200K sf office in Irvine 🍊 

• Hizzoner’s RE guy has phone seized (catch up on Big Apple’s Turkish Delight scandal here)

• Outparcel-focused retail REIT raises quarter-bill in IPO 

• JLL swallows tech industry focused (did OpenAI, Anthropic leases) brokerage Raise

• Devastating chart: State-by-state breakdown of how much strain data centers are putting on the grid (also see: Blackstone’s gigawatt game)

• Sonder back in the news - but tbh what you really need to read is this @somehotelguy breakdown of the Marriott-Sonder deal 🧑‍🍳 😙 

Unquotable Quotes