Lads of Lakewood & Fundraising Spin Doctors

Spin Doctors

“If you can meet with Triumph and Disaster. And treat those two impostors just the same.” - Rudyard Kipling, IF

Fundraising, above all else – performance, strategy, differentiated theses – is a game of storytelling. You are telling investors a tale about yourself, and then you are telling the world how successfully that tale landed. The greatest fundraisers, from Jon Gray to Adam Neumann, get this in their gut.

Fundraising (Cont.)

Madison Realty Capital just closed a $2.04B debt fund, its sixth and largest US-focused vehicle. The company, part owned by SV wealth manager Iconiq, is writing megachecks on some of the flashiest projects in the country - more on Madison here. The just-closed fund, which it launched 2Y ago, will focus on multi deals, but also “opportunistic” plays in a bunch of other CRE classes. Return investors filled more than 2/3 of its coffers, and the firm emphasized that it was Madison’s 2nd consecutive fund to raise $2B+. The press ate it up. See here and here – only Bloomberg seems to have noted that the raise fell just short of its $2.25B target.

Meanwhile, Lone Star Funds raised far more than Madison – $700M more – but the narrative was far less cheerful, because the haul was less than half its initial $6B target. Per PERE, it was the smallest amount the firm raised for any fund in the series since July 2008, something publication AltAssets also noted. It’s still a hefty chunk of change, but the story it tells isn’t great, and this comment from its co-head of CRE isn’t either:

Pay attention to the stories being told, whether it’s Blackstone’s reacceleration or KKR’s “When Fear is a Friend.” They’re a bigger part of the whole game than you might think.

Bonus: Our trilogy on the Quiet Kings of Capital - the market’s most active alt lenders: Pt. I, Pt. II, and Pt. III 

Lads of Lakewood

For sheer drama, 08701 > 90210: The township of Lakewood, NJ has given rise to some of the most audacious plays in CRE this decade, and also some of its more sordid flameouts. It’s hard to pick a starting point: real heads will remember Raphael “I’m worth a fuckload of money, bro” Toledano (see email footer 😍 ), who became one of the East Village’s biggest landlords at 26, became the poster boy of tenant harassment in NYC, lost his prized portfolio to Madison, and then was banned for 5Y from the NY real estate industry by the state AG (full recap here).

Or you can stick to the present day and look at Shaya Prager, whose Opal Holdings went on an office buying spree for the ages in Chicagoland and Texas, cashed out tens of millions of dollars and lived the life, and is now losing buildings left and right while being sued by lenders alleging fraud. Prager’s latest legal battle is rather funny, with him claiming that a capital partner reneged on an agreement to cough up $25M because God told him not to 🤲 (h/t TRD). No written contract between the two exists, Prager claimed in court, because “these transactions were informal, based on handshake agreements between two sophisticated businesspersons.” 👏 👏 👏 

There’s also the mess with Strategic Properties of North America, which made big condo deconversion bets in Chicago and is now facing lawsuits from condo boards and investors as well as dealing w/ the floating-rate reaper - TRD has a nifty new summary. Strategic is now headed by Yitzy Klor (Chicago) and Saul Kupperwasser (Lakewood), but its platform was built by founder Julian Blumenthal, and sources told The Promote the firm’s troubles began after his passing in ‘17.

Or you could look at the service providers that juiced many of these now-scrutinized transactions, such as title firm Riverside Abstract, which performed a fugazi closing for convicted mortgage fraudsters Barry Drillman and Aron Puretz (another son of Lakewood), has been blackballed by Fannie Mae, and in the wake of the fallout tried to sell itself to nursing home mogul Avery Eisenreich - that whole ownership thing remains murky.

Just as you can’t write the tale of the diamond industry 💎 without a pilgrimage to Surat, no tale of high-stakes CRE is complete without some Lakewood cholent. Much more to come 🍛 

What’s NYC Distressed Debt Worth?

We now have a price tag on SL Green’s purchase of the debt on RFR’s empty, distressed Fifth Ave. tower: $134M, or 60 cents/$, per TRD. Per CO, the Holliday-led REIT doesn’t intend to wrest the building away from RFR, but will instead work w/ the firm on the building’s glow-up and re-tenanting. RFR paid $350M (≈$600/ foot) for the property in ‘20, and got a $224M floater (loan basis = $390/foot) from Credit Suisse.

Though it was a summer of hell for Aby Rosen’s firm, from defaults to vaporized partners to special servicer tussles, it insists it’s going to work its troubles out without handing back keys on any of its darlings – instead, refis & recaps “will preserve and enhance long-term value in our trophy properties,” it said. Quite a task - remember that as of a May analysis by the FT, $2.5B of debt on its portfolio is coming due in the next year or is already delinquent.

That’s Showbiz Baby

“You're gonna have some union problems; my client could make then disappear.” - Tom Hagen

Victor Coleman was CRE’s conduit to Hollywood, and every player wanted a piece of him. Coleman’s Hudson Pacific Properties had built up an enviable portfolio of studio real estate, 2.2M sf of soundstages and related space, and in the summer of ‘20 struck a JV deal w/ Blackstone: The behemoth would buy a 49% slice of the $1.65B portfolio, and would partner on future developments and acquisitions in the asset class.

“Our business is driven by investing thematically in sectors with powerful secular tailwinds ™️ , and there is no better example of that than content creation in Los Angeles,” Blackstone’s Ken Caplan said at the time.

Then emerged a headwind: the writers strike of May’ 23. HPP pulled its guidance and slashed its dividend, then suspended it, citing the strike. The dividend was reinstated this March, but it’s once again been suspended. “Studio demand has recovered more slowly than anticipated following the union strikes and negotiations,” said Coleman, noting that suspension was needed to “preserve capital in an ongoing challenging environment.” HPP stock is down nearly 50% this year – tbf, this isn’t all on their showbiz biz – they’re also a major office owner.

Worth a check-in on some of the other players: Michael Hackman’s Hackman Capital Partners just crossed a major hurdle on $1B Television City complex, where it’s planning over 700K sf of production space. Its capital partner on that project, and on its overall studio portfolio, is Affinius (fka Square Mile Capital). Soundstage projects planned/underway could add 50% to LA’s current stock, per CBRE, while in NYC 🗽 , developers are set to boost the stock by 30% through 11 new campuses.

That’s a lotta primo content real estate, competing not only w/ each other but also w/ stuff that’s being made for phones. To me, it’s companies like Gymnasium (creator of the seriously hilarious Boy Room) that pose a proper threat. 

Quickies

• 📽️ Blackstone’s Gigawatt Game - how big can data centers go?

• Death, racism and wrestling matches at the world’s biggest megaproject

• Rising’s $300M loan on DTLA tower goes to special servicing

• Who needs Kerouac? A retail developer drives 1,100 miles through Florida – and takes notes 

• The Fed Whisperer on whether cuts will start big or small

• Pelosi invests into SF boutique office JV (more on SF’s bargain office hunters here)

• CIM inks DTLA’s largest lease of the year at Two California ⛽️ 

• UK designates data center sites as “critical infrastructure” 

• Obsessed w/ these Jon Gray kindly uncle running through the world deal crushing vids 🏃‍♂️ 🌍️ 🖋️ 

Unquotable Quotes