The Promote: Fall of a Megalandlord, Bonus Dep Bonanza, CSI: Austin RE Edition

The fall of a megalandlord

Development, in the good times, is a blue-collar symphony 🎶 : 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.

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 lion’s share of them in ultra-NIMBY markets such as Santa Monica. He built yuppie dream product – prime locations, amenity’d out, vibey – and enjoyed premium rents. A developer’s developer, he was one of the first to test the scope of Builder’s 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 that’s not the end of it: the Shekhter clan has signed PGs on several other deals now being worked through with other lenders. 

TRD’s Bella Farr methodically put together a tale of the tape. In ‘19, Madison Realty Capital (Zegen, Shatz, Tantleff), a major NYC debt and equity shop, was starting to venture West and bet a big stack 💰️ on Shekhter. It gave him $345M cross-collateralized across 7 properties, then upsized to $1.2B x ≅30 properties over the next 3Y. Other lenders to Shekhter included David Lichtenstein’s Lightstone Capital and local billionaire Don Hankey’s Hankey Capital. Much of the debt was floating-rate. So when the Fed did its thing, interest on some parcels went from 7.5→12%.

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 he’s walking into the path of all his other creditors, and it’s a path filled with PGs. 

“If he was cash-heavy, he’d be sitting on a gold mine of multifamily,” one source told TRD. “Time got away.” ⏳️ 

Uncle Sam’s Club: Bonus Depreciation

A tax bill that reinstates 100% bonus depreciation and extends it through ‘26 was passed in the House, 357-70. Next stop, the Senate. 

I got some color from the Wizard 🧙‍♂️ of OZ, Savoy’s Barrett Linburg, on what this might mean for RE folk. Paraphrased takes below

• BFD for all RE investors, including institutionals, but has gotten more ❤️ 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 doesn’t address SALT, gives Biden a win on 🧒 tax credit. Smith might be on 🧊 w his party   

Bonus: Good primer on how Bonus Dep works 👇️ 

CSI: Austin

Surprise, surprise: StoryBuilt’s 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 “at build out” 🥧 

Interesting methodology. A bit like valuing Bolivian coca plantations 🍃 at what a gram of white sells for in Tribeca.  

Anyway, ℅ new testimony from the receiver, we now know this probably won’t fly. “A lot of the things we’re uncovering are inexplicable,” Stapleton’s Mike Bergthold said in Travis County court, per TRD. He found that most of StoryBuilt’s developments are worth less than their secured debt. 🤷

Like any savvy startup will tell you, there’s no shame in pivoting: instead of trying to wholesale the portfolio, the receiver is now willing to sell assets piecemeal. It’s scrambling to complete SFHs 🏘️ that are already spoken for, and axing big chunks of Storybuilt’s staff. 

Meanwhile, lenders are getting tetchy and starting to foreclose, and partners are mutinying: StoryBuilt’s largest backer, 🇨🇭 investor Partners Group AG, alleges it was blindsided by the sales process, while another investor, the Craddick family (serious pull in Texas 🤠 ) says the receiver’s 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 StoryBuilt’s 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 investor’s recent deals include the acquisition of a 210-unit complex in DFW (Mesquite). 

As of October, Rise’s watchlisted debt exceeded $250M, per TRD. Remember that the company’s co-founders Zach Haptonstall and Bikran Sandhu are also teaching a “Fundamentals of Capital Raising” course.

Hedgie Titan Dislikes Gambling

Miami’s alpha transplant (or maybe that’s 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.

“Allowing casinos to harm thriving communities and undermine Florida families is like willingly dumping toxic waste into the Everglades,” Griffin wrote. Soffer, in between surviving scams from fake Saudi princes, has been jockeying 🏇 for years to get the state to back his plans, so it’ll be interesting to see what he says when he bumps into Griffin at Carbone next. 

Multifamily Gut Check

Good taking of the NMHC 🌡️ here from Jay, RealPage’s chief economist and soon-to-be head of investment strategy at TX-based Madera Residential.

$50 to his name

Unquotable Quotes