Diary of a Distressed Investor & Biting Off Banks

Diary of a Distressed Investor

Every stage of the cycle has its main characters, from the syndicators and proptech VCs of ZIRP to the wildcatting condo developers of the luxury market boom. We’re now firmly in the distressed-debt age, and two of its buzziest protagonists are David Aviram & Ted Martell of Maverick Real Estate Partners.

Maverick is among New York’s most active buyers of troubled debt, with $1.1B in purchases since ‘10 – it pays all-cash. In February, it snagged a $247M chunk of the Signature CRE book from a Blackstone/CPP/Rialto JV, and its name is in the mix whenever a particularly hairy loan deal is up for grabs in the city. Along the way, it’s gained a reputation for playing hardball, even with powerful players such as Croman, Ashkenazy and Chetrit. Aviram prefers to frame it as a “carrot and stick approach.” 🥕 🥍 

"In today's illiquid market where value is less certain, we prefer to lead with the carrot,” Aviram told The Promote during a wide-ranging recent conversation. “But if we can't achieve our preferred result, we have viable alternatives that we've underwritten."

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Maverick (cont.)

Originators have conflicted considerations – the delinquent borrower they’re staring down in the boardroom today could be a repeat client tomorrow – but Maverick, which doesn’t issue its own loans, is primarily focused on its reputation among lenders – both banks and nonbanks. “We close quickly and do what we say we’re going to do,” said Aviram. His shop comes into play “after the relationship [b/w sponsor & lender] has broken,” he said, adding that he would tell borrowers that in this market, “the best relationship you're going to have is with your current lender. Make it work. Listen to them. Do your best to respond to their requests. If you don't, your loan will be sold to someone that has much higher return requirements” – default interest rates can go as high as 24%.

Buying debt deals sans leverage is unusual at this level of the game, and Aviram said it allows for speed – Maverick can close within a week of learning about a deal – and flexibility in handling problem loans.

“Leverage can lead an investor to work to achieve someone else's objectives,” he said.

Maverick is staying focused on New York, with Aviram describing it as “the most liquid market in the world, which is critically important for a strategy like ours.” He declined to comment on specific transactions, but talked through his playbook for dealing with struggling community and regional banks that have outsized exposure to RS multi and commodity office loans (primer here).

“We use our data (meaty dive into NYC’s RS market here) to isolate the healthiest portions of bank portfolios, and pay up for their best assets that have shorter duration,” he said. “For the smaller banks with significant distress, we provide structured capital solutions combined with special servicing capabilities. For banks that fail (breakdown of Signature here), we can provide credible bids to the FDIC, scaling up with partners who value our data and expertise."

SFR’s Wounded Upstarts Eye Merger

Is it time to bring the Starwood SFR mafia back together? Doug Brien and Gary Beasley, both former leaders of SFR giant Waypoint Homes who then went on to found SFR-focused startups Mynd and Roofstock respectively, are considering a merger, per Bloomberg. Both companies raised boatloads of VC funds – at its peak in ‘22, Roofstock was valued at $1.9B – but both have sobered up since. Last year, Roofstock laid off over a quarter of its staff. Mynd scored a $5B commitment from Invesco to acquire SFHs in ‘21 (as well as a $40M investment from the firm that valued it at $300M), but it’s unclear how much of that war chest it’s spent.

SFR was among the most tantalizing ZIRP-era opportunities for Wall Street, and the startups spun it accordingly: Brien threw out a TAM of $4.5 Trillion when I chatted w/ him in mid ‘22, and Beasley had described the sector to me as a “bond indexed for inflation with an equity kicker.” Right around then, the Fed started raising rates, and much of the excitement dimmed, leading in part to the wave of consolidation we’re seeing now.

Quickies

• 🎥 How are debt funds grappling with their syndicator bets? 

• “We don’t play poker and we don’t bluff:” Douglas Durst on freezing Halletts Point plans bc NYC’s new tax break isn’t good enough

• Harry Macklowe gets stay of execution from CIM on 432 Park pads

• NYC and Port Authority do land swap deal which gives the city control of the Red Hook coastline, with an eye toward large-scale waterfront redevelopment 🗽 

• Grocer Erewhon, home to $17 strawberries 🍓 and $138 totes, is suing L.A. to stop the multifamily redevelopment of Sportsmen’s Lodge. The project is being developed by Erewhon’s landlord…

• CGI’s Trump Hotel in DC is slated for a foreclosure auction in June. I’m hearing that two more CGI properties, the Gabriel Miami downtown and the Gabriel Miami Beach 🏖️ , are in a similar predicament, though things may still be worked out w/ their lenders

Sharks Die if They Stop Swimming

Multifamily syndicator Rise48 (Zach Haptonstall, Bikran Sandhu), staring down a wall of distress in the Sunbelt, is planting flags in greener pastures. The company set up operations in Charlotte, with an office in SouthPark and 2 deals already in contract, per the CBJ ( 🎩 @jasoncoxnc).

"The biggest players in this space are private equity firms, and most have been on the sidelines since Q3 or Q4 of 2022 because of interest-rate volatility," said Haptonstall – notable that he wasn’t asked about the firm’s own volatility in Phoenix, where over a quarter-billion in debt tied to its holdings was watchlisted as of November and there’s fresh chatter of a major restructuring 👀 in the works. (If new to the syndicator storyline, start here and here and here.)

Rise48 ($2B+ in acquisitions to date) wants to amass 750 units in Charlotte by year-end and expects to be able to get them at 20-30% discounts to ‘22 pricing. "We renovate the interior and exterior to increase revenue and value, then look to sell," Haptonstall added. "This is the only thing we do; we're focused on this one niche."

Biting Off Banks

We dove into German lender PBB’s indecent exposure to US CRE in February. Now, Blackstone has come in to lighten the bank’s load: the investor’s in talks to buy a billion-dollar book of US and UK loans (performing) from PBB, per Bloomberg, spread across office, resi and hotels. The move jives nicely w/ Blackstone’s “reacceleration” mantra, echoed by many of its rivals, from KKR to Brookfield- see here for more.

Meanwhile, NYCB is also getting into fighting shape: fresh off a $1B lifeline from a Mnuchin-led investment group, the bank is making good on its promise to reduce CRE exposure by selling a $5B book of mortgage warehouse loans to JPMorgan.

Unquotable Quotes