No Promote for Blackstone & Syndicator Lifeline's Fate in the Balance

No Promote for Blackstone REIT

“To me, a story can be both concrete and abstract, or a concrete story can hold abstractions.” - David Lynch 🙏 

Blackstone has been telling the world of a real estate recovery, a market ripe for big, transformative bets on the future of the built environment, bets that it was put on this Earth to make. But new data from its flagship fund hint at salvation still being a ways away. BREIT gained just 2% in ‘24, and though that’s a lot better than its 0.5% loss in ‘23, its managers will still not be able to take a promote - BREIT needs to deliver at least 5% for it to share in carried interest, and per Bloomberg this is the 2nd year in a row in which it hasn’t met that threshold.

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BREIT (Cont.)

For context: the S&P 500 jumped 23% last year. But BREIT’s archrivals fared even worse than it did; KKR's REIT lost 2% last year and Starwood’s lost 0.5%. BREIT reported that its bet on data centers (QTS) was the biggest contributor to its performance.

BREIT’s NAV is now at $54B, compared to $62B a year ago. After a painful stretch of dealing w/ investor redemption requests, its net redemptions are now down 97% from their Jan. ‘23 peak. “Though not V-shaped, the real estate recovery is underway,” BREIT said in investor docs, saying that interest rates staying high impacted performance in multifamily and net-lease sectors. It pointed to “healing capital markets” – its all-in cost of capital was down 37% from ‘23 – as a reason for being bullish for the year ahead.

Last summer, BREIT tapped COO Wesley LePatner to take the top job, replacing the retiring Frank Cohen. Let’s see how the market likes the story she tells.

Texas Legislature Shaping Fate of Syndicator Lifeline

It’s all happening in the Texas legislature, which meets in odd-numbered years (I know..) to determine the fate of multifamily syndicators. The industry (syndicators, attorneys, lenders & assorted apparatchiks) has been anxiously awaiting new language on traveling HFCs, property-tax absolving vehicles that have become a key lifeline for troubled deals – The Promote did a deep dive into the whole thing in Oct., which I highly recommend reading first. A bill on them was introduced Jan. 13, and here are some highlights w/ context – keep in mind that this language will keep evolving in the next few weeks, as lawmakers from both HFC-friendly and antagonistic jurisdictions have their say. “At initial glance it looks a little ambiguous,” said Shameer Soni, a Texas lawyer active on HFC deals. “However, the bill is going to continue to evolve in the legislature before it’s passed.” Or, as one major multifamily investor put it: “We heard it’s going to get horse traded a bit.” 🏇 🐴 

• No new traveling HFCs going forward: This was widely expected to be the case, and no one is too sad about it. However: Expect a frenzy w/ HFCs going ham to lock in deals, as the bill says (Sec. 13) that anything done before it passes is fair game: “Basically a starter's gun for all bad actors," is how Dallas MF investor Barrett Linburg put it. “5 months to cram through as many deals as possible with no repercussions.” 🔫 

• Introduced by Rep. Gary Gates out of Ft. Bend County, a jurisdiction that’s known to be pretty HFC-friendly

• Are existing deals grandfathered in 👴 ? For the most part, the answer looks to be yes, which would be the best-case scenario for syndicators. However, there’s a tad bit of uncertainty here – could there be some sort of annual jurisdictional test to determine if a deal gets to keep its exemption- unclear

  

  
  While everything’s up in the air, the capital markets for these kind of deals have been… interesting: Freddie has stopped quoting new deals on traveling HFCs, as we first reported in Nov. , and CMBS lenders don’t have much love for them either – they’re willing to lend on new deals that pencil out without the exemption, and basically no deals fall into that category. 🚬 So the action has all been in loan mods.

Pulte’s Prize

Bill Pulte, the grandson of homebuilding titan William Pulte, is President-elect Trump’s pick to head the FHFA, which would give the scion oversight of Fannie & Freddie - i.e. make him a principal character in the agency-lending biz.

Pulte “believes in the incredible power of our nation and will help us restore the American dream for all,” Trump wrote on Truth Social. Pulte, who doesn’t have much in terms of regulatory experience and is best known for his Twitter philanthropy, would be coming in at a critical juncture: Trump’s team has been exploring removing Fannie & Freddie from govt. control, a move w/ industry-reshaping implications: the 2 firms owned/guaranteed 40% of the $2.2T multifamily mortgage market as of Sept. ‘23.

Going Nuclear on Nussbaum

“And, like that, he’s gone.” - Verbal Kint

Indulge me, please, in a personal safari 🚙 : Sitting in Miami Beach Wednesday, I was scrambling to wrap up a piece on embattled CRE attorney Mark Nussbaum before my flight out of CREFC. In it, we covered his response to an explosive lawsuit brought by nursing-home bigwig Jacob Sod, w/ Sod alleging that Nussbaum had failed to return $15M in escrow capital. The Promote had been told after learning of Mendy Steiner’s death by suicide last week that the Sod-Nussbaum dispute was essential context to understand Steiner, w/ Nussbaum having both a close personal and working r’ship w/ Steiner; further support for the latter was later uncovered by TRD, which spotted a link between the borrower entity in the Sod-Nussbaum dispute & Steiner.

We published and I was heading to MIA ✈️ , w/ my Uber driver blasting Vicente Fernández’s Sinatra tribute “A Mi Manera,” when I learned of another bombshell: Nussbaum was shutting down his eponymous law firm, effective immediately. He directed clients to reach out to Ethan Kobre, the firm’s lawyer handling the wind down, for assistance on escrow matters. This wasn’t some Mickey Mouse firm btw – Nussbaum has represented major dealmakers such as Shaya Prager, Aron Puretz, Moshe Silber and Yoel Goldman, many of whom are under the spotlight for the wrong reasons at the moment.

I take off, and about an hour into the flight I scramble some free Wifi and receive another hit: Nussbaum is being sued again over allegedly missing escrow funds, this time $7M. The plaintiff in the case is Williamsburg-based Key City Equities, which appears to be (see ties in pic) Brooklyn developer Harry Einhorn – he didn’t respond to requests for comment, nor did Nussbaum.

Have a sense that there will be many more of these actions filed… and what dirt they uncover is anybody’s guess. 🍿 

Quickies

• 🎥 Private CRE’s biggest sponsors hope for fundraising frenzy 😼 🦁 

• SFR giants on the sidelines w/ homes valued at 4 caps 🏘️ 

• Gural nabs $288M loan from BDT & MSD (plz rebrand) for office-resi FiDi bet

• Korean pension fund revving up for global CRE push 🇰🇷

• Live Local battle cry: Developer sues Hollywood to force approval of beachside tower (more on the landmark FL law here)

• Snippets from HUD Sec Turner’s confirmation hearing 

• Mining behemoths in merger talks (I only share this in case it means more $$ for Savanna’s secret backer Telis Mistakidis, who made his fortune @ Glencore)

• Biden signs EO freeing up federal land for data centers 🇺🇸 

• V cool interactive on the impact (so far) of 🗽 congestion pricing 🚘️

• Where does LA’s luxe market go from here? 🚁 🧯 

Unquotable Quotes