CoStar Eats Matterport & Multifamily Banking Time Bombs

CoStar Eats Matterport

First he came for your office listings. Then retail, hotel, and multifamily. Now, Andy Florance wants your whole real estate flywheel in 3D 👓️ .

Florance’s CoStar Group is acquiring Matterport, a leading software for virtual walkthroughs and 3D digital twins, for $1.6B in a cash-and-stock deal, CoStar announced Monday. Matterport’s board unanimously approved the deal ($5.5/share), which comes at a fat premium for its shareholders.

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CoStar Matterport (cont.)

Matterport’s revenue in ‘23 was $158M, up 16% YoY. The company, which went public via SPAC (sponsor: Gores Group, $2B+ valuation) in ‘21 is bleeding 🩸 money, having posted a $199M net loss for the year. Won’t matter much to CoStar, though, which is buying it for the scope and the flywheel: Here’s CoStar:

Matterport has curated what is considered the largest and most precise collection of spatial property data worldwide, with over 12 million spaces captured in 177 countries, and representing more than 38 billion square feet of digital property under management. Contributing to this growth, Matterport has established a global network of several thousand photographers, capture services technicians, and service partners producing hundreds of thousands of new 3D digital twins for properties each month. 

CoStar (market cap: $34.6B) is an M&A monster, swallowing up Homes.com, Apartments.com, ForRent, STR 🏨 , Ten-X 🫢 in the last couple years. Per an analysis by Mostly Borrowed Ideas, the firm spent nearly 2/3 of its free cash flow on acquisitions over the past 2 decades. Information & analytics used to be its primary source of revenue, with brokers its main customers, but today it is increasingly marketplace-driven, with a far broader customer base.

It’s just been a couple hours since the acquisition announcement dropped, but there’s already chatter online of the M-word. Remember that the FTC successfully stymied CoStar’s attempted merger with RentPath in ‘20, and has thrown its weight around in other CoStar M&A matters. (One developer tagged FTC chair Lina Khan in a tweet about Monday’s announcement, then promptly deleted his tweet 😅 ).

Multifamily Banking Time Bombs

How many radioactive multifamily loans are regional banks sitting on? That’s the question on investors’ minds as the banks begin to report Q1 earnings. WSJ sleuths out a particularly concerning example, a Coney Island apartment complex called Amalgamated Warbasse Houses that had a $275M unpaid principal balance (massive for a co-op loan). New York Community Bank took a $112M charge-off (basically, fuck, we’re not getting paid) on the loan in Q4.

Here’s WSJ: While the borrower and the charge-off on the loan are known, there are still some mysteries behind it. NYCB said the borrower wasn’t in default. But the way it accounted for the loan loss made it clear that NYCB had determined the loan wouldn’t be fully collectible. The bank didn’t say why.

Soon after the charge-off (which helped tank the bank’s stock), NYCB sold the loan to BofA, per the publication. Remember that NYCB is one of the poster boys of the multifamily lending storm, has been playing executive musical chairs and recently received a $1B infusion from a Steve Mnuchin-led investor group.

Are other Warbasses are hiding in plain sight?

Quickies

• Concern that the Fed’s method of forecasting & communicating changes on interest-rate policy isn’t nimble enough 

• A highly un-PC breakdown of multifamily CLOs: “Now replace ‘bowel movement’ with ‘syndicated multifamily bridge debt’”…

• Another Meridian dealmaker - Tal Savariego – exits stage left

• Yellowstone buys 1740 Broadway note (defaulted on by Blackstone in ‘22) for $200M 

NY Housing Deal Passes- Key Nuggets

Done deal. One of the biggest overhauls of NY housing policy is in the bag. TRD’s Katie Brenzel has the juice:

•  485x (421a successor): nixes the highest-income option of the program, provides a 40Y tax exemption, and runs till 2034. REBNY and the Building Trades found a complicated middle ground on wages

• Office-resi conversions: 25% of new units have to be affordable at weighted avg. of 80% of AMI

• FAR cap has been lifted, paving the way for NYC to rezone for larger apartment buildings

• A “good cause eviction” clause similar to California’s: NYC tenants can challenge evictions resulting from rent increases >10% (or 5% + inflation, whichever is less.)

• On individual apartment improvements, new bill allows for landlords to pass a bit more of the costs on to tenants in the form of higher rents (neither landlords nor tenants are happy w this compromise)

Seattle Titan Faces Reckoning

Martin Selig has had an epic run on Seattle’s skyline. The octogenarian developer controls a multibillion-dollar office empire in the city’s prime corridors, with 30-odd buildings downtown, and Forbes estimates his net worth at $1.4B. But he’s now grappling with an “imminent maturity default” on a sizable chunk of his portfolio, per a Trepp alert cited by the Seattle Times. 

A $239M loan backed by 7 Selig downtown office properties was sent to special servicing last month, and a Trepp analyst estimated that a refinance might need Selig to kick in an additional $40M-$100M of equity (more on cash-in refis here).

“No one’s going to want to buy these properties, except at a fire-sale price,” said UW’s Steven Bourassa, speaking generally about Seattle’s office stock. “Our lenders continue to be supportive in reaching a positive resolution,” Selig’s firm told the publication.

How to Play Nice with Special Servicers

Brighton Capital Advisors’ Michael Cohen had a really interesting and surprisingly candid chat with CO on navigating special servicers. My key nuggets

• “Borrowers do not have power with these special servicers. Once you get into special servicing, you’re going to start to incur fees. And you’re under their control. The relationship that you have to form is to establish that the borrower is the best representative to go through and take this asset to the next side.”

• “You have to realize that there’s bond warfare. You’ll get responses that are not logical because it’s benefiting the lowest class holder because maybe they want to hold the loss and buy up the tranches.”

• “The first complaint the servicers will all say across the board is, ‘Why are borrowers coming to us so late with their action?’ So, borrowers who are waiting for the lender to create a loan modification or work out a deal for you: you’re going to get the most draconian thing that you can possibly imagine. It’s, ‘Pay me down and pay me down.’” 🦈🦈 

(Bonus: Check out our video breakdown of a suit against SS Rialto)

Unquotable Quotes

PS: Wishing those who celebrate a Happy Passover. Chag Sameach - may your matzo balls forever be fluffy!