Brickman "Steps Down" & Mega-Foreclosure Back On

Brickman “Steps Down” @ NewPoint 🤔 

“He's gone, and we couldn't do nothing about it.” - Vinnie

David Brickman, the former CEO of Freddie Mac who became the founding chief executive of Meridian/Barings JV lender NewPoint, is out, as Brian Brooks continues to clean house at the embattled Meridian & its affiliates. Brickman’s NewPoint exit was described by CO as him “stepping down,” but the next few sentences call into question that characterization.

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Meridian/NewPoint (Cont.)

Brickman’s departure and the appointment of Nick Gesue as CEO were reported as “effective immediately,” which doesn’t usually happen at the highest levels of a company – there’s generally a transition period – and NewPoint employees only learned about it on Monday, the same day the story came out.

“A carefully planned transition executed by the board of NewPoint to align the platform’s strategic direction with its goals,” is how a source familiar w/ the matter described it to The Promote, noting that Brickman would continue to advise NewPoint’s affordable housing finance JV. Meridian declined to comment.

There’s a whole story between the lines there. Something weird had gone down in November, when Brickman had vacated his role as exec chair of Meridian – right around the time that Freddie began investigating Meridian. He took pains to distance himself – mentions of Meridian were scrubbed from several online profiles.

Brooks, who is chair of the board at NewPoint and also CEO & chair at Meridian since March, has been cracking down on the latter firm’s cowboy culture. There’s been a sense that changes at the very top were necessary to convey the seriousness of the undertaking: Meridian prez and crown prince Yoni Goodman left in July, and the Brickman departure gives Brooks a chance to have his own pick run Meridian’s big lending bet.

“Brooks is trying to right the ship and clean house and I could see the house being too dirty w/ Brickman still involved,” one source said.

While at Freddie, Brickman helped establish the SBL program in ‘14, which Arbor Realty Trust says it helped Freddie develop. Arbor is now being investigated by the feds over its lending practices – to be perfectly clear, we’re not connecting Brickman w/ any of that mess, just saying that Brooks may have wanted a clean break as he continues to sort out Meridian and NewPoint. NewPoint was launched by Meridian/Barings in summer ‘21 w/ backing from PE firm Stone Point Capital, and is licensed as a DUS (Fannie), Optigo (Freddie) and HUD lender – so there are a lot of regulators and stakeholders to think about.

Meanwhile, the list of Meridian departing rainmakers and execs continues to grow – check out The Promote’s snapshot above.

Charles In Charge 

Fortress can move ahead w/ its mega-foreclosure on Charles Cohen’s property empire, a judge ruled, with the auction date set for Nov. 8. The judge had ruled in June that Fortress’ plan to pursue the $534M foreclosure wasn’t “commercially reasonable” (that’s the bar set by the UCC) but had given Fortress time to come up w/ another plan. Cohen, for his part, had wanted to put the kibosh on the auction, arguing that it had reached a debt restructuring deal w/ Fortress. When that didn’t work, Cohen had pushed for a few more months, claiming that it would be tough to attract good offers in such a compressed time. Fortress’ lawyer, however, persuaded the judge that no higher bids would be able to compensate for the $7M in interest that Cohen was racking up every month. I recommend reading the spicy transcript - here’s a snippet (h/t TRD):

Fortress’ attorney: I would suggest, the likelihood that another month is going to get another $7M is less likely than that interest just continuing to accrue
Judge: Wow. So that's assuming a fairly risky game on [Cohen’s] side: that they would rather expand the debt and potentially be responsible for all these increased costs, all on the assumption that even if they lose everything, they'll be bankrupt anyway, so who cares? 🍿 

Cohen has a crunching $187M PG on the portfolio, which Fortress is gunning to collect. The judge’s decision on that is pending.

Meanwhile, there’s some action over at Cohen’s 475 PAS office tower: an investor group including vet mortgage broker Rob Horowitz (of Cooper Horowitz fame) has bought the $121M note on Cohen’s leasehold, per PincusCo. The seller was NYCB/Flagstar, which has been looking to reduce its CRE exposure after the Mnuchin-led takeover. Safe to assume the debt was bought at quite a discount. Horowitz told the publication the deal was arm’s length and that the new debt owners won’t sell the paper back to Cohen, but will look to restructure. The ground under the building is owned by the estate of Sol Goldman, which has been trying to get Cohen out for years.   

Fractional Fuckery

The whole is generally considered to be greater than the sum of its parts, but try telling proptechbois that: Fractional RE ownership was one of the hottest areas for VCs over the last few years (Roofstock, Pacaso, Arrived), with the promise being that the home could be turned into a commodity: tradeable, priceable, liquid. We’ve already seen what’s happened with the likes of Roofstock, and Bisnow now has a terrific look into the fate of one of the smaller (by $$, not by aspiration obvz) players in the space: Landa, which raised $33M in ‘22 (For almost every proptech misadventure, there is a corresponding TechCrunch wet kiss “Landa can make you a landlord with just $5”). What happened next? Here’s Bisnow:

Reality hasn't come close to matching that vision. Many investors who bought shares in Landa's houses have been unable to access their money. More than half of the properties Landa has sold shares in have no cash in their accounts and aren't paying dividends. Some investors fear a total loss.

The plotlines are familiar: Heavily levered purchases. Lukewarm demand for ownership shares. Inability to keep up w/ debt service. Foreclosures. Tenants who find the maintenance crappy, but stay on because rents are so well below market. And then there’s the basket 🧺 of fees: 5-10% acquisition fees, 5-10% of rent as management fees 👏 

Landa investors may not be able to trade fractional shares if a market for them doesn’t develop, the startup discloses, and once any shares in a property have been sold, Landa isn’t required to return investor cash – there are no fundraising minimums.

Multifamily investor Michael Knight described Landa to the publication thus: “Appears to fall into the category of ‘let’s pretend the real estate business is a video game.’” 🤲 

Bonus: Proptech graveyard/infirmary: Check out ten31’s running list

Scotia Buys into KeyBank

Interesting snippet for anyone keeping up w/ regional lenders: Canadian giant 🍁 Scotiabank is buying a 15% stake in KeyBank, per the Globe and Mail. KeyBank was one of the hardest-hit lenders in last year’s regional bank crisis, and the infusion will speed up its balance-sheet restructuring, the bank said. Fairly active player in the CRE world, both senior debt and pref: it bankrolled a Hollywood office project for Kingsbarn in ‘23 (things went sour tho) and led a $520M agency deal for a workforce housing portfolio earlier this year. The Scotia move follows other opportunistic plays in the regional-banking space: Mnuchin’s NYCB investment and Fortress’ 25% stake in First Foundation come to mind.

Quickies

• 📽️  Agency lenders suddenly care about due diligence

• JLL discloses $18M loss on multifamily loan fraud by Schulman/Silber/Puretz (catch up w/ case here)

• Ben Ashkenazy (TRD no longer prefacing him w/ “billionaire investor” 🙃 ) hands back Mag Mile retail property to Barings 

• Gural, TPG plan 800-unit office-to-resi in FiDi

• RXR/SLG exploring resi conversion of 5 Times Square 

• Morningstar affirms credit rating on Arbor notes 😅

• Trump seeks zoning change to build 1,500 condos in Doral 🏌️

• CA voters are tired of pricey affordable housing bonds 

Unquotable Quotes

PS: Really grateful for the overwhelming response to Monday’s special ed. on the extreme pressures of being a RE developer, and the deadly outcomes they can lead to. Thank you to all who wrote in - was a risky & difficult piece to put together but I’m glad we did - HS