FBI Raids Megalandlord and No Country for Nepo Billionaires

FBI Raids Multi Giant

“If I had my choice, I would rather be feared. Fear lasts longer than love.” - Sonny, A Bronx Tale

The DoJ is dialing up the fear factor in its rent-fixing probe against RealPage and some of the country’s top multifamily landlords. On May 22, it dispatched the FBI on a morning raid of the offices of Cortland, an Atlanta-based firm w/ 85K+ units under management.

"Agents were at that address conducting court authorized activity,” an FBI spox told MLex. Sources told The Promote that the agents were looking for RealPage-related comms.

Brought to you by: BetterPitch

If you’re in the real estate business, you’re in the capital raising business. And central to a successful fundraise is a professional pitch deck, built by marketing experts who understand the industry intimately. Enter BetterPitch.

After $3B+ in deals facilitated, BetterPitch is expanding into full-service marketing: branding, websites, investor materials, ad campaigns, content creation, and more. Readers of The Promote get unlimited revisions on your materials until you’re 100% satisfied. Get started today.

RealPage (cont.)

The DoJ upgraded its investigation to a criminal matter a couple months ago, and it seeks to determine whether RealPage’s algorithmic software (fka Yieldstar) is enabling rental price-fixing among large landlords and property management firms. Caught in the mix are several of the country’s biggest players, including Greystar, Lincoln Property Company, Equity Residential & Cushman-owned Pinnacle Property Management Services. There are also class-action lawsuits to contend with, as well as politicians intent on making an example out of the industry in election season.

“Setting prices with an algorithm is no different from doing it over cigars and whiskey in a private club,” 🚬 🥃 Sen. Ron Wyden, one of the sponsors of a bill seeking to ban the practice, said in January.

The RealPage probe is part of the Biden admin’s multi-front war on the real estate industry, which is also dealing w/ an antitrust investigation into the country’s largest resi trade group NAR and a crackdown on home-closing fees. 

No Country for Nepo Billionaires

If the Coen brothers were writing a script set in the bare-knuckled world of New York real estate, the drama playing out at Cohen Brothers wouldn’t be a bad place to start. Charles Cohen’s company is on the cusp of losing a mega-portfolio to UCC foreclosure after an alleged $534M default. Playing the role of enforcer here is Fortress Investment Group, which had Cohen sign a staggering $187M personal guarantee to score the loan – a deal with the devil 👿 that Cohen now desperately regrets.

TRD has some new deets on how it all went down. In February, after being asked by Fortress to put in better (i.e. not money-bleeding) collateral, Cohen offered up a 60s-era office building and asked that his PG be waived. This did not amuse the folks at Fortress, long used to cracking the skulls of RE titans (See Macklowe, Harry and Swig, Kent).

“You’ve not made your last payment, and you’ve not demonstrated that you understand or prioritize the severity of the situation,” Fortress’ Dean Dakolias responded. By the end of March, Cohen was ready to walk away from some assets, and a month later Fortress filed to kick off what’s got to be among the largest UCC foreclosures ever. The July 1 auction has attracted 140+ bidders, per TRD.

For his part, Cohen says Fortress’ move “smacks of bad faith” and accuses the firm of being loose w/ confidential info (rent rolls) in a way that would see his portfolio take a $1B hit.

In the good times, scions do just fine as real estate players. Cash the rent checks, hit the galas, attend the groundbreakings. But when you’re faced with existential problems, as many of the biggest office landlords are right now, it requires something more, something elemental, to get through it. It remains to be seen if Cohen has that thing: when talks w/ Fortress were getting intense, he was in Paris checking in on a theater renovation. Quelle surprise 🍿 

Brought to you by: Constitution Lending

Invest in non-performing & performing loans secured by real estate with the Constitution Real Estate Credit Fund. By using our established lending platform, proprietary deal sourcing & banking relationships, the fund aims to generate strong absolute risk-adjusted returns. Accredited investors only.

Learn more about the fund here.

Blackstone Corners SASB CMBS Market

About half of single-borrower CMBS issuances so far this year were on Blackstone deals, per Bloomberg, w/ the investment giant responsible for $12B+ of volume. That’s a big comeback from ‘23, a year in which Blackstone accounted for just 10% of the action.

“We are in the midst of the largest wave of SASB (single-asset, single-borrower) issuance in more than 2Y,” said Balbec Capital’s Marcello Cricco-Lizza, “in part due to hopes of Fed cutting over the next 18M, w/ multiple cuts still priced into the forward curve.” The avg. CMBS yield is 5.67%, a tad higher than what top-tier corporate bonds offer.
 
Blackstone has had luck refi’ing a host of assets, from multi to hotels and water parks 🛝 . It’s a return to form – between ‘17 and ‘22, Blackstone accounted for $98B of the total $264B of SASB issuance, per BoA. Office deals are, of course, a lot trickier – remember that it was a Blackstone office deal that led to CMBS AAA bondholders suffering their first losses since the GFC (listen to us break it down on Odd Lots here).

Brought to you by: 1031 Specialists

Get the definitive primer on the most important tax-deferral program for real estate investors. We break down everything from dos/don’ts to eligibility requirements and best practices. Download it here (no email required).

Quickies

• 🎥 What would CRE do without Bank OZK? 

• VC-juiced co-living firm Common goes kaput 

•  Airbnb’s trump card in STR regulation fight: hosts

• “Gorillas and senior gorillas:” Inside NYCB white knight Steve Mnuchin’s global ambitions

Fed’s Kashkari Warns of CRE Surprise Shocks

Minneapolis Fed prez Neel Kashkari expects big losses in CRE, which is not a new sentiment but still noteworthy when it’s delivered from such a perch. What was more interesting, however, was what he said next: regulators can study the issue all they want – surprises are likely still around the corner.

“Most banks seem like they are well-positioned to handle those losses,” he said at an event in London last week. “But my experience from the financial crisis of ‘08 is that usually there are surprises on which balance sheets ultimately are exposed to those losses. When those surprises manifest, that’s something else that I’m concerned about.”

“We’re looking very carefully,” he added – “but I also know we’re going to be surprised.”

(Bonus: Federal regulator walks The Promote through a CRE loan book review)

Unquotable Quotes