How $164M Went Missing in Multi Megadeal, TikTok Clarice & Blank-check Firms Come for Failed Banks

How $164M Went Missing in Multi Megadeal

They had to renew the show for at least another season 📺️ . The drama had already brought you the loss of a 2,000+ apartment portfolio in the heart of San Francisco, a takeover by Brookfield and Ballast via the debt, and the gutting of one of the city’s largest landlords, Veritas (Catch up here). Now, we’ve got the case of the missing $164M, courtesy of a holdback by the special servicer.

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Missing Monies (cont.)

TPG Angelo Gordon, LibreMax Capital and Lord Abbett & Co. had invested in a ‘21 Goldman-led CMBS bond deal backed by 60+ buildings owned by Veritas and capital partner Baupost. Veritas/Baupost defaulted on the $675M debt at the end of ‘22, setting off the saga, and Brookfield/Ballast bought the debt at a deep discount ($513M, so 25%-ish). Already a bad situation for the bond investors, but it got worse in January: Special servicer Midland (a PNC Financial joint) informed the investors that $164M of their money was being held back, per Bloomberg – at least for now. It has not specified why and did not justify the size of the holdback, nor was it obligated to. Sources told the publication that one likely explanation was to shore up funds to combat potential litigation by bondholders - Midland had sold the debt despite objections from the 3 firms that the price was too low.

“This is a risk investors did not expect,” analyst Stav Gaon of Academy Securities told Bloomberg. “There’s no reason to think that something like this won’t happen again.”

There are going to be lots of defaults coming, and special servicers are having a party (a mini dive into Jeff Krasnoff’s Rialto here). Here’s Bloomberg:

This looming mountain of distress has made Wall Street especially sensitive to conflicts like the one involving the portfolio of San Francisco apartment debt. If interest rates remain high and more deals get into trouble, then special servicers are likely to find themselves acting as referees on more and more deals.

JPMorgan strategist Chong Sin wrote in a note that in the Midland deal factors including the lack of explanation and the large size of the holdback could contribute to investors growing less confident about the securities. Investors are still determining what incentives servicers may have in resolving deals in the future.

TikTok, Clarice

“Five years ago, if I said to you, ‘well TikTok’s going to come to New York,’ people would say, ‘what’s a TikTok? Is that the watch on your wrist?'” - Bill Rudin

When TikTok signed a megalease (232K sf) at Durst’s One Five One (fka 4 Times Square) in May 2020, it was hailed as one of the only saving graces of NYC’s office market at the height of the pandemic. The social-video app, the cultural phenom of our age, inked other significant leases all across the country (including 650K+ sf in San Jose), and CoStar reported this January that it was on a major leasing push in Silicon Valley, greater Seattle and Nashville.

Easy come, easy go. The company, which is owned by Chinese 🇨🇳 firm ByteDance, is at the center of a U.S.-China data privacy war. On Wednesday the House voted overwhelmingly to ban TikTok from US operations or force a sale.

Being banned is generally inversely correlated with leasing activity and paying rent, so we’ll see where this goes. Up next is the Senate. Landlords are definitely watching closely, antacids in hand 🤒  

New Blank-check BFF: Regional Banks

Forget SPACing cell towers 📵 and struggling Sternlicht hotels: A group of Wall Street vets is looking to create the ultimate cocktail 🍸️ of capitalism: Blank-check cos to acquire failed regional banks shut down by the FDIC.

Porticoes Capital is the brainchild of Leslie Lieberman, a Drexel Burnham Lambert alum who bought banks in the wake of the GFC, per the FT. He’s joined by Tom Naratil, a former top 🐕️ at UBS, and Manuel Sánchez Rodriguez, a former top 🐩 at BBVA and a Fannie Mae board member.

Like a SPAC, the blank-check firm isn’t an operating co. and would need to close on an acquisition to do business. Unlike a SPAC, however, the amount of investor funds it raises will depend on the size of the target bank. Also unlike a SPAC, Porticoes isn’t eyeing an IPO and will raise money in a private offering. It only has permission to buy failed banks, per the FT, rather than the exotic targets that have become a hallmark of recent SPACs (Proptechs were a key target - didn’t go well).

We’re a year out from the failure of Silicon Valley Bank, the Patient Zero of this most recent regional banking crisis. Signature and First Republic came next, and NYCB recently got a $1B lifeline. Last week, Fed chair Jay Powell predicted more casualties, saying “there will be more failures.” 

Flatiron Building Owner Takes Piece of FiDi

Jeff Gural, who came second but eventually first in the Flatiron Building auction, has scored his latest bargain: he’s in contract for a 31-story office building at 222 Broadway, TRD reports, slated to pay $150M (<$200/foot) for a property that the seller (Deutsche) paid $500M ($600+/foot) for a decade ago. 

Gural is eyeing a major office-to-resi conversion at the property, which could yield between 600-800 apartments. The Newmark crew are helping him shop for $200M in debt to get the job done.

The New York real estate scion has become one of the faces of the city’s office-resi push. He’s looking to convert (along w Brodsky, Sorgente) the Flatiron into a 40-unit luxe condo project. Meanwhile, at 25 Water Street, he and Metro Loft’s Nathan Berman are in the thick of the country’s largest office-resi conversion, turning the 1.1M sf property into 1,300 units - the partners received a $500M+ loan for the project at the end of ‘22.

(Fun fact: Gural is one of the FEW industry bigwigs aware of his privilege - he’s a member of the Patriotic Millionaires, a group of wealthy folk that push for higher taxes on top earners.)    

Quickies

• Money manager Kayne Anderson is hovering around Sterling Bay’s Lincoln Yards megaproject in Chicago. The $6B, 53-acre development has been on a quest to find new backers ever since it lost JPMorgan and Lone Star Funds.

• Activist investor Jonathan Litt calls on Equity Commonwealth to shut up shop

• New twist at Midtown’s HSBC Tower: The owner is looking to raise $400M in Israeli TASE bonds to buy and pay off its debt at the property. (This tale warrants more ink, TK) 

• Membership in embattled resi trade group NAR keeps dropping, falling under 1.5M for the first time in nearly 3Y (Bit of context on this ethically porous behemoth here)

• Somehow, a repeated failure to address repairs at two Upper Manhattan buildings has led to an arrest warrant 👮‍♀️ for the landlord, Daniel Ohebshalom (who also goes by Shalom)

Correction

In Monday’s edition of The Promote, I initially cited the City of Dallas’ population (1.3M) while discussing multifamily supply in Texas. I should have been using the figure for the DFW metro area (8M). Cheers to the Wizard of OZ for the spot.

Unquotable Quotes

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