Syndicator Fee Buffet, JLL's I-Banking Shtick & Griffin's Miami HQ

Fee Fi Fo Fum: GVA’s “Entrepreneurial Profit”

Innovation comes in many forms. You can build the best product, or have the snazziest marketing and sales campaign, or have the lowest cost of capital because of your ability to find funds in far-flung places (EB-5, TASE Bonds). But when you’re a syndicator buying generic Sun Belt product and employing the same fix-and-flip playbook like everybody else, the creativity may have to come from the fee structure.

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GVA - syndicator fees (cont.)

Alan Stalcup has emerged as one of the poster boys of the multifamily syndicator reckoning. His GVA quickly became one of the country’s largest landlords in the ZIRP era, with a first-class ticket on the floating-rate express 🚅 that saw it amass 30K units at breakneck pace – in one ‘22 deal, it dropped $703M for a dozen-property portfolio.

You can probably guess what happened next: GVA has defaulted on $600M in debt as of January, per a new TRD profile. One of its long-suffering key lenders, LoanCore, is moving to foreclose on a number of properties. Investor communications have turned from rip-roaring to somber, almost meditative: a Q3 investor update reviewed by The Promote has Stalcup saying that “it’s a very difficult time right now…incredibly fluid with several dynamics at play all at once,” and noting that GVA is ”doing our best to communicate when we have known information, but it is often fluid and not fully actionable to communicate.” In the update, Stalcup mentions that GVA is “evaluating sales for partial equity recapture,” adding that “something is better than zero.”

This is bad, of course. But the key takeaway for me here is that one doesn’t simply evaporate giant sums of investor money without a little support. It’s the appraisers and the lenders and the attorneys and the talk-show hosts that help make this whole thing work 🙉 . Consider Retreat at River Park, a 222-unit complex in Georgia. In Feb. ‘22, CBRE performed an appraisal of the property on behalf of LoanCore, in which the firm signs off on a 25% “entrepreneurial profit” for the sponsor - this was not structured like a standard “promote,” mind you, but as a fee to be collected as a cut of total renovation costs (which also included a 10% construction management fee). In this case, GVA’s slated “entrepreneurial profit” was $536,215 (see image up top). Stalcup makes that no matter which way the deal goes.

JLL’s I-Banking Shtick

"He's an old-fashioned guy, Pop, very allegorical." - Little Carmine

There’s something self-destructive in the drinking fountains at the big brokerages. Avison Young’s CEO went on the warpath late last month in a series of interviews after his firm defaulted on its corporate-level debt, leaving observers quite confused about what he wished to convey. And now, it’s JLL’s turn: the brokerage’s New York chief Peter Riguardi did a sit-down with CO for a wide-ranging interview in which he discussed the firm’s pivot away from a “star broker” model towards a more “investment-banking approach.” (Riguardi did the interview in December, well before ousting Bob Knakal, per CO, but the publication just ran it yesterday.)

I can’t do Riguardi justice with my limited skill with words, so here are his verbatim:

“In an investment bank, the client comes first, the firm someone works for comes second, and the individual comes third,” Peter Riguardi said, while sipping on a Diet Coke in his office at 330 Madison Avenue. “In the real estate service industry, the client comes first, but a lot of times — especially in brokerage — the individual comes second, and the company comes third. You’re not going to survive at JLL unless you feel like JLL comes second.”

He stressed that the days of the “me-first mindset” were over at JLL, and that going forward the firm would emphasize “enterprise thinking,” with pros expected to drive new business to all arms of the enterprise: I-sales, leasing, property management, M&A etc.

The I-banking language made me think instantly of Eastdil Secured, which has long positioned itself that way and tried to market itself as above the “brokerage” fray. Sources active in the market, however, characterized JLL’s move as misguided, stressing that although a 360° infrastructure is indeed critical for market domination, you still need the stars.

“You need a ground game AND an air cover game,” one rainmaker said. “You need stars, but you need them on the right platform – a one-stop shop with debt/equity services merging. But you gotta have talent - without talent you get mediocrity.” The source’s point: It’s not JLL’s infrastructure issues that are the big concern here, but rather its lack of monster closers.

Meanwhile: Outgoing CBRE I-sales ace Darcy Stacom (catch up here) is set to launch her firm next month, per CO. Stacom is taking a decidedly modest approach to the new venture, looking to hire two brokers who will not be dealmakers in their own right, but rather “more technical and strategic support on transactions.”

House of Griffindor

Billionaire hedgie and aspiring city-shaper Ken Griffin has been cooking up a $1B HQ in Miami’s Brickell for his Citadel, slated to be the epicenter of “Wall Street South.” WSJ has new deets on Griffin’s plans: Norman Foster will be the architect, and a luxury hotel 🏨 is slated for the top of the building. Griffin’s $363M ($3,300+/foot 🤯 ) purchase of the 2.5-acre waterfront site in ‘22 is seen as the biggest statement so far of Miami’s aspirations to rival New York 🗽 as a financial capital. He had initially tapped Chicago megadeveloper Sterling Bay to oversee the project, but soured on the firm last April. He now has Google’s real estate mastermind Paul Darrah (ran Google’s St. John’s terminal campus project in NYC) on board.

Quickies

• Aby Rosen’s RFR signed a PE firm to a 34K sf lease at the Seagram Building (375 Park). What’s interesting here is that the tenant rep, OPEN Impact Real Estate, is explicitly billed in the Bloomberg piece as a “woman-owned brokerage” - the firm’s principals are Lindsay Ornstein and Stephen Powers. You don’t see that kind of identity-based positioning much in CRE - wonder if it’ll catch on.

• (Trying not to use the voice of Jason Statham’s “Snatch” character here): A good read on how lender Corestate financed some real estate buccaneering in its native Germany 🇩🇪 , and how the country’s development industry is grappling with the sorry aftermath 

• More trouble for LA multi megalandlord Neil Shekhter (saga here if you’re new to it), who’s lost 3 more Santa Monica buildings to foreclosure

• FTC and DOJ weigh in on Yardi rent price-fixing class-action suit

• I’m hearing that some bridge lenders are following in the footsteps 👣 of Fannie and refusing to fund deals in which Madison Title or Riverside Abstract serve as the title agents. This is notable, because every time a developer needs additional lender funds released, a title firm typically runs what’s known as a “continuation search.” But with lenders saying “no mas” to these two firms on capex draws, a sponsor would have to switch their title provider in the middle of a deal. (If new to the whole Drillman mortgage fraud saga and why this is happening, start here.)

  

  New correspondence from bridge lender re. to Riverside/Madison, via tipster

    

CrowdStreet’s Thought Leadership

What, me worry? Being at the center of real estate crowdfunding’s largest scam and having investors calling for it to be shut down hasn’t stopped CrowdStreet from publishing thought leadership. The platform recently dropped its 2024 investing outlook report, penned by chief investment officer Ian Formigle – presumably the same CIO who marketed Nightingale’s Atlanta Financial Center deal with the now-infamous “$10B Enterprise Sponsor Brings Trophy Asset with Huge Potential in Hot Market” subject line. (If new to the Nightingale/CrowdStreet saga, start here.)

From the report: We see opportunity in the office sector as relatively straightforward. We will consider deals with market-clearing pricing for high-quality office properties in locations that we believe have a strong potential to recover during the upcoming real estate cycle. Even with a high level of scrutiny, we still see some office projects showing signs of market recovery, discounted prices, and recovering occupancy rates. Due to the inherent risk in the office sector today, we will consider projects with high cap rates or significantly discounted pricing in case of unknown factors that can hurt the project, meaning such projects may have the potential for a greater margin of error - this combination may provide the confidence we need to bring office deals to our Marketplace in the sector’s recessionary period.

At least it has a disclaimer: “Investing in commercial real estate entails substantive risk. You should not invest unless you can sustain the risk of loss of capital, including the risk of total loss of capital.” 🤷‍♀️ 

Unquotable Quotes

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