For Sale By Banker & RealPage Bites Back

For Sale By Banker

“Makes me sick, motherf*cker, how far we done fell.” - Bunk Moreland

Listing a Manhattan skyscraper used to be a quasi-religious process, akin to unboxing a limited-edition sneaker 👟 . The city’s top I-sales brokers would jockey for the prestigious assignment, research wonks would scour comps to determine pricing guidance, a building measurement team would be brought in to creatively “grow” the property. The seller and their broker would figure out what narrative would best justify a premium pricing (amenities, location, A+ tenants, condo conversion potential). Once the messaging was set, a prospectus would go out to a select group of qualified buyers, and then a call would be put through to the ordained publication for the wider reveal, which would contain the mouth-watering line: “The property is expected to sell for…” 🤩     

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Bank Sales(cont.)

Bank sellers strip all the romance out of the game – you can feel their disdain for being landlords in times like these. Case in point: UBS is marketing the leasehold at 135 W West 50th St, a nearly 1M sf tower known as the Sports Illustrated Building, on CRE auction platform Ten-X, with bids starting at $7.5M 🥹 , per TRD. Anyone with an account can get in the mix, a far cry from the selective bidding process you’d see when the market was good. UBS has a long history w/ the property: it bought the leasehold from Norman Sturner’s Murray Hill Properties for $333M (top ✅ )in ‘06, and bought the land for $279M in ‘12. In ‘19, it sold the fee position to iStar’s Safehold (Jay Sugarman) for $285M. The property (managed by George Comfort & Sons, UBS leasehold runs until 2123) has a lot of things going against it: it’s just 35% occupied despite a pricey recent renovation; it’s a 60s-era building when tenants want shiny & new; and concerns about ground leases (Ashkenazy vs. SL Green, anyone?) are likely to spook some prospective buyers.

One winner from this change in approach is CoStar: Andy Florance’s data behemoth bought Ten-X (fka Auction.com) for $190M in the thick of the pandemic, with Florance predicting that it would become a clearinghouse for a “tsunami of distressed deals.” 🌊 

RealPage: We Ain’t the Problem

RealPage has quickly become the boogeyman of the national rental affordability crisis, and what a burden to shoulder: the DOJ’s criminal rent-fixing probe, civil antitrust action, FBI raids and class-action suits on some of its biggest customers (catch up here). The company has decided it’s time for some damage control: It issued a statement last week decrying the “false narrative” around its software, and CEO Dana Jones said “housing affordability should be the real focus.”

In a section titled “setting the record straight,” the company declared that RealPage customers (some of the country’s largest MF landlords) determine their own rents, have full discretion on whether or not to adopt pricing recs, and “are never punished for declining recommendations.” Contrary to the perception that RealPage is all about jacking up rents, the company said that the software makes recs in all directions (“up, down or no change”) depending on market conditions and the landlord’s (they never use this word btw, opting instead for “housing provider” 👏 ) goals. Moreover, RealPage never recommends that a landlord withhold vacant units from the market, it said.

The Thoma Bravo-owned firm has set up a “resource center” to fight the prevailing media narrative (this new piece in the Prospect goes particularly hard). The move rhymes with what Blackstone did earlier this year when it was taking heat for its rental housing bets (It opted for the “Myth”… “Fact” approach).

More Power

The rapid emergence of data centers as a significant real estate asset class has been well chronicled. Blackstone is all over the space, and investors who found themselves in possession of sites worthy of data-center projects have enjoyed monster returns – Chuck Kuhn recently sold a Gainesville parcel to Microsoft for $466M, or $3.75M/acre, and also paid Toll Bros. $181M for an Ashburn parcel Toll had bought for just $5M. Zooming out, there are 7K+ data centers in the global pipeline, nearly double the ‘15 figure, per Bloomberg. With that manic AI boom-driven demand comes a whole host of complications, chief among them being power. DigitalBridge’s Marc Ganzi, one of the largest players in the space, had warned in May that data centers could run out of power in the next 2Y. Here’s Bloomberg:

The almost overnight surge in electricity demand from data centers is now outstripping the available power supply in many parts of the world, according to interviews with data center operators, energy providers and tech executives. That dynamic is leading to years-long waits for businesses to access the grid as well as growing concerns of outages and price increases for those living in the densest data center markets.

What this means for RE: high-profile hubs such as VA’s Loudoun County are warning of long backlogs for data-center developers to be able to hook up to the electric grid. “It could be as quick as 2Y, it could be 4Y depending on what needs to be built,” Dominion Energy prez Edward Baine told the publication. Other markets, such as Texas, are touting themselves as alternatives by promising far shorter wait times.

(Bonus: For a better understanding of how the process of building and running a data center works, I highly recommend the latest Odd Lots conversation w/ a top exec at AI chip startup CoreWeave. The firm recently landed $7.5B in private-debt financing from Blackstone, DigitalBridge, BlackRock & others, so it’s a great lens into the world from someone really in the mix.)

Canada Dry

Canadian pension funds, once-lofty lords of American skylines, are acknowledging that they’re less than stoked about how things have gone on the RE front lately. We’ve looked at CPP’s unceremonious exit from many of its high-profile bets – the 29% stake sale of 360 PAS for $1 (plus a release from future funding obligations) caught a ton of headlines. Many of its peers are also taking corrective measures to either reduce their exposure or get a better grip on things.

“What’s worked famously well for the last 35 years may not work so well for the next five to 10,” Ontario Teachers’ Pension Plan CEO Jo Taylor told Bloomberg. OTPP recently took RE investment authority away from its subsidiary Cadillac Fairview. The Caisse, whose Ivanhoé Cambridge is one of the most important RE investors here, lost 6.2% on its RE bets in FY ‘23, and said in Jan. that it was merging that arm w/ its property lending platfom, Otéra. The Caisse is also exploring using more third-party managers and JVs on its bets rather than going it alone.

(ICYMI: The CPP recently admitted, in the most Canadian way possible, that its 18Y journey w/ active management has been a dud.)

Quickies

• 🎥 Persian invasion: Manhattan office is a Great Neck game

• BGO surrenders D.C. office tower to Brookfield via deed-in-lieu

• 7abibi come to Dubai: Has the emirate 🇦🇪 evolved out of boomtown mode? 

• Brookfield lands mammoth $750M Morgan refi at 1 Liberty Plaza

• $493M SASB CMBS for Fortress’ outdoor storage portfolio - being billed as first of its kind

• A murderer’s row of appraisal declines 

Unquotable Quotes