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The Promote: Fall of a Megalandlord, Bonus Dep Bonanza, CSI: Austin RE Edition
The fall of a megalandlord
Neil Shekhter (NMS, WS Communities)
Development, in the good times, is a blue-collar symphony š¶ : You get the money, cobble a crew together, build something people want, and run an operation that hopefully lets you take in more than you spend. There is an art to it, and a science, and it is deeply satisfying to see the fruits of your labor and risk manifest so visibly.
Development, in the bad times, is a Jenga deathmatch. A single fuckup, one swivel of the rates, one rash contract, and it could all come crashing down. Not just the house, but your house, too.
What's on tap - Feb. 2
The floating-rate reaper has claimed his share of souls post-Zirp, but in Los Angeles we now have the clearest case study, at scale, of just how bad things can get.
At his pomp, Westside landlord Neil Shekhter (NMS, WS) controlled more than 2,400 apartments, the lionās share of them in ultra-NIMBY markets such as Santa Monica. He built yuppie dream product ā prime locations, amenityād out, vibey ā and enjoyed premium rents. A developerās developer, he was one of the first to test the scope of Builderās Remedy.
Things have turned. Last month, Shekhter lost over half his portfolio to his lenders, defaulting on $1.1B in debt and surrendering nearly 30 properties in deeds-in-lieu. And thatās not the end of it: the Shekhter clan has signed PGs on several other deals now being worked through with other lenders.
TRDās Bella Farr methodically put together a tale of the tape. In ā19, Madison Realty Capital (Zegen, Shatz, Tantleff), a major NYC debt and equity shop, was starting to venture West and bet a big stack š°ļø on Shekhter. It gave him $345M cross-collateralized across 7 properties, then upsized to $1.2B x ā 30 properties over the next 3Y. Other lenders to Shekhter included David Lichtensteinās Lightstone Capital and local billionaire Don Hankeyās Hankey Capital. Much of the debt was floating-rate. So when the Fed did its thing, interest on some parcels went from 7.5ā12%.
Late last year, Shekhter defaulted on the Madison debt. In signing a deed-in-lieu, the lender pulled the plug rather than extend or force a sale, taking control of 20 properties (Lightstone took over another 3 and Hankey 6). These actions let Shekhter walk away. But heās walking into the path of all his other creditors, and itās a path filled with PGs.
āIf he was cash-heavy, heād be sitting on a gold mine of multifamily,ā one source told TRD. āTime got away.ā ā³ļø
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Uncle Samās Club: Bonus Depreciation
A tax bill that reinstates 100% bonus depreciation and extends it through ā26 was passed in the House, 357-70. Next stop, the Senate.
I got some color from the Wizard š§āāļø of OZ, Savoyās Barrett Linburg, on what this might mean for RE folk. Paraphrased takes below
BFD for all RE investors, including institutionals, but has gotten more ā¤ļø from retail investors
In OZs, this will mean ~50 bps tax-adjusted IRR increase for future deals
Lots of scuttlebutt surrounding Jason Smith, GOP chair of House Ways & Means. Co-drafted tax package w Dem senator Ron Wyden, who heads Senate Finance Committee. Republicans mad bc package doesnāt address SALT, gives Biden a win on š§ tax credit. Smith might be on š§ w his party
Bonus: Good primer on how Bonus Dep works šļø
Real estate investors, developers and operators can make millions a year and pay almost nothing in TAXES by utilizing Bonus Depreciation.
A thread on how it works:
ā Melanie Baldridge (@recostseg)
5:19 PM ā¢ Jan 31, 2024
CSI: Austin
Storybuilt founder Anthony Siela
Surprise, surprise: StoryBuiltās portfolio is NOT worth $2 billion.
After the resi developer self-immolated in the summer, its receiver, Stapleton, started shopping a 28-property portfolio (Austin, Dallas, Seattle, Denver) in various stages of undress development. One of the brokerages hired for the process, A&G, slapped a $2B valuation on the sites, getting to this girthy number by estimating the total value āat build outā š„§
Interesting methodology. A bit like valuing Bolivian coca plantations š at what a gram of white sells for in Tribeca.
Anyway, ā new testimony from the receiver, we now know this probably wonāt fly. āA lot of the things weāre uncovering are inexplicable,ā Stapletonās Mike Bergthold said in Travis County court, per TRD. He found that most of StoryBuiltās developments are worth less than their secured debt. š¤·
Like any savvy startup will tell you, thereās no shame in pivoting: instead of trying to wholesale the portfolio, the receiver is now willing to sell assets piecemeal. Itās scrambling to complete SFHs šļø that are already spoken for, and axing big chunks of Storybuiltās staff.
Meanwhile, lenders are getting tetchy and starting to foreclose, and partners are mutinying: StoryBuiltās largest backer, šØš investor Partners Group AG, alleges it was blindsided by the sales process, while another investor, the Craddick family (serious pull in Texas š¤ ) says the receiverās involvement has only dragged things out and ruined deals. Regulators have also shown interest.
Given all this, the receiver is quite upset: it plans to sue StoryBuiltās former principals (the company was co-founded by Ryan Diepenbrock and Anthony Siela) alleging gross mismanagement: Borrowing $3M+ hard money at rates north of 280% is but one shining example.
Rumor Mill: Rise Up
Hearing from a tipster that prominent multifamily syndicator Rise48 is selling a Dallas deal, off-market, at debt value. The investorās recent deals include the acquisition of a 210-unit complex in DFW (Mesquite).
As of October, Riseās watchlisted debt exceeded $250M, per TRD. Remember that the companyās co-founders Zach Haptonstall and Bikran Sandhu are also teaching a āFundamentals of Capital Raisingā course.
Hedgie Titan Dislikes Gambling
Miamiās alpha transplant (or maybe thatās Bezos now?) Ken Griffin has penned a strongly worded letter in the Miami Herald opposing state bills that could allow Jeff Soffer to open a casino at his Fontainebleau Miami Beach.
Griffin, a GOP kingmaker and increasingly a South Florida real estate macher, hit out at legislation allowing permit holders to transfer their licenses to properties in a 30-mile radius.
āAllowing casinos to harm thriving communities and undermine Florida families is like willingly dumping toxic waste into the Everglades,ā Griffin wrote. Soffer, in between surviving scams from fake Saudi princes, has been jockeying š for years to get the state to back his plans, so itāll be interesting to see what he says when he bumps into Griffin at Carbone next.
Multifamily Gut Check
Multifamily industry's largest event -- NMHC Annual Meeting -- wrapped up yesterday. Here are a few observations:
1) Optimism is returning. Not that 2024 will be a banner year by any means, but that "it's not getting worse." Wide expectations that 2024 will be a slog due toā¦ twitter.com/i/web/status/1ā¦
ā Jay Parsons (@jayparsons)
3:08 PM ā¢ Feb 2, 2024
Good taking of the NMHC š”ļø here from Jay, RealPageās chief economist and soon-to-be head of investment strategy at TX-based Madera Residential.
$50 to his name
Nir Meir (R) has declared bankruptcy in Florida, a dramatic fall from grace for one of New Yorkās most visible luxury condo developers (Photo here is from COās Power 100 ranking in ā16)
Unquotable Quotes
āMy husband? He learns [Torah] half a day. He learns in the morning and then he helps me do errands in my house, and then he does for me what I need him to.ā
āIt was a crock of shit.ā