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Nightingale's Federal Music & RXR's Kodak Moment

Remembering Neil Shekhter, LNR comes at AmTrust & DoJ sorts Schwartz

Author

Hiten Samtani
November 27, 2024

Going Federal

Elie Schwartz is set to face federal charges in crowdfunding scheme

It is fitting that such an operatic case – unrequited Atlanta skyscraper dreams, jilted retail investors, MIA sponsor, luxury watch & First Republic stock YOLOing – be given the biggest possible stage, and the DoJ has answered the call. Nightingale Properties’ Elie Schwartz is set to face federal criminal charges next week, in connection w/ what is thought to be CRE’s biggest-ever crowdfunding scandal: he’s scheduled to be arraigned 12/4 in U.S. District Court in GA, Bisnow reports. Both the DoJ’s fraud crew and the US Attorney’s office are investigating Schwartz’s shenanigans. “This arraignment marks a significant milestone,” CrowdStreet, the platform through which Schwartz raised $54M in funds for 2 unconsummated deals, said in a statement. “We hope this moment serves as a reminder that, in time, the scales of justice do work.” ⚖️  It is absolutely worth noting that CrowdStreet neglected to hold investor funds in escrow (it’s since amended that policy, but too late for the victims here); that its CEO, Tore Steen, resigned in the wake of the scandal; and that the jilted investors have called for it to be shut down.

Meanwhile, investors in the Atlanta Financial Center deal have recouped 14¢/$ so far, while those in the Miami Beach office reno deal have recouped 17¢/$. The trustee overseeing the recovery process has warned that further funds will be hard to come by – Uncle Sam and sr. lenders would get first dibs. 🇺🇸

Fee Fi Fo Fum

LNR Comes at AmTrust

LNR has hit AmTrust w/ a foreclosure suit at the Illinois Center complex

AmTrust has been trying to rejig its capstack at the two-tower Illinois Center office complex in downtown Chicago, but its special servicer looks to have run out of patience: LNR (a Starwood joint) moved to foreclose on the 2.1M sf property, per TRD, claiming that AmTrust has bailed on nearly $900K in debt service payments due in Jan., and has failed to fully meet its debt service in subsequent months. LNR also brings up a sticky subject in its suit: the ‘16 death of AmTrust co-founder Michael Karfunkel, which it says the firm hasn’t properly addressed – Karfunkel was a guarantor on the debt, and though he was supposed to be replaced on loan docs by his wife, LNR alleges he never was - that could, per TRD, put AmTrust on the hook for the default rate 💀 

Quick rundown: AmTrust bought the complex in ‘15 for $375M, 70% leased at the time. The tower is now just 46% leased as of June ( U.S. Department of Health & Human Services exited its 170K sf digs last Y), per loan servicing data, and the loan’s UPB is $241M, maturing next summer. AmTrust has been negotiating other headaches in the area: it lost the 43-story 30 N. LaSalle St. to its lenders, and is moving to convert another distressed property to resi.

See also: Beacon’s Mega-Foreclosure Battle 

RXR’s Project Kodak Finally Clicks

Ropes & Gray has committed to at least 430K sf at RXR’s 1285 Sixth

We’ve seen plenty of examples of what RXR’s Scott Rechler deems “Kodak film,” 🎞️ buildings in his portfolio (61 Broadway, 47 Hall) that don’t stand up to the post-Covid leasing world and must be consciously uncoupled from. But on the flip side of that project are “digital” assets, those worth pushing through the pain for. 1285 Sixth, which RXR bought in partnership w/ 🐐 David Werner & China Life Insurance for $1.7B in ‘16, was one such property: this time last year, RXR modded a $1.2B Morgan Stanley/AIG loan on the 1.8M sf tower, kicking in an add’l $220M of equity to fund reserves and to bring down the loan balance to $980M, and agreeing to a 6% (up from 4%) rate.

After the struggle, the crown: RXR just signed law firm Ropes & Gray to a 430K sf lease at the tower, per Crain’s, w/ an option to upsize to 535K sf. The good news for the office market overall is that Ropes is upsizing – its current digs at Ivanhoé Cambridge’s 1211 Sixth are just 300K sf. At 1285, it looks to be taking over the space of rival Paul, Weiss, which is also upsizing 🍟 in its move to Fisher Bros.’ 1345 Sixth.

Quickies

Postscript: Neil Shekhter

Neil Shekhter, one of LA’s most prominent developer/landlords, died Saturday

How’s this for the beginning of a beautiful friendship? Neil Shekhter stormed into our New York office, an absolute unit flanked by his son Adam and the 6’7 debt broker Justin Piasecki, and immediately set the tone with: “So you’re the ones writing the fake news?” Though I had years of experience dealing w/ angry CRE folk, it took me a second to recover, but once we got to actually talking, the dynamic changed dramatically – here was a guy who cared immensely about his business, a guy who built thousands of units in one of the world’s hardest markets to build. And he just wanted a fair shake in the press, which I tried to give him. When I moved to LA, we got together, bonding over 🏓 , and I got a better sense of the person behind the empire: the bizarre Soviet-era dark humor, the “action is the juice” mindset he brought to development, the adoration he expressed so naturally for his family. He gave me an insider’s look into the byzantine business of building in California, and was my guide through Builder’s Remedy, which he became one of the first major developers to test the scope of.

He also, as has been well-chronicled, became one of the most high-profile casualties of the capital markets, losing over half his portfolio to lenders and on the hook for millions of dollars in PGs. This is a tough business, w/ immense swings in fortune that can bring with them crushing despair, as we’ve explored in these pages. 

On Saturday night, Neil died. His family sent me a statement, which read in part: “Just being next to him and hearing him speak gave one the confidence that anything they wanted could be made reality.” His own career was a testament to that – a political refugee who went from driving a cab to day trading to stitching together one of the most enviable portfolios in the country. One gets to choose how they remember their friends, and that’s how I will - as Neil would say, “Respekk.” - HS

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