Meridian's Reset, RealPage Criminal Probe & Skyscrapers on the Cheap

Meridian Attempts a Reset

Here we go. Meridian Capital Group has brought in new leadership with serious regulatory pedigree as it seeks to clean up its act with the GSEs. Brian Brooks, a former acting comptroller of the currency 💵 , will take the CEO and chairman titles from founder Ralph Herzka, who now assumes the “who’s really in charge here?” moniker of “senior chairman.” Meridian, as we’ve explored here, is in the eye of several storms: Fannie and Freddie have effectively blacklisted it and brokers have jumped ship.

Brooks was surprisingly candid in an interview with Bloomberg about the debt powerhouse’s troubles: “Obviously we need to reset that relationship and we need to build a risk infrastructure at Meridian that meets Freddie Mac’s expectations — that’s job one,” he said, noting that his new firm needs to “improve the risk culture.”

“We want to make sure that the deals we do are the best deals out there, and nobody raises questions about them afterward,” Brooks said.

Meridian (cont.)

Herzka (quick primer on him here) isn’t going away, the company made clear. That, to me, complicates the “new sheriff in town” goal 👮 – how much can you change if the boss boss is still around? – but does mean the guy with all the key relationships is still in the mix, which is what dealmakers care about.

Brooks comes to Meridian with cred from Fannie, where he helped overhaul its corporate governance structure. He also has a longstanding relationship with Steve Mnuchin, whom he served as acting comptroller of the currency when Mnuchin was Treasury Secretary. Mnuchin is now at the helm of an investor group that recently pumped $1B into struggling New York Community Bank – a key multifamily lender that Herzka and Meridian have been very tight with for decades. So, lots of familiar faces.

A Criminal Rent-Fixing Probe

Started from the civil, now we’re here. The Justice Department has escalated its investigation into top property management software RealPage – it is now a criminal probe, per Politico. The DOJ is checking out whether RealPage is enabling rental price-fixing among large landlords and property management firms, according to the publication. Here’s Politico:

RealPage’s software, including its YieldStar product, is used by landlords to estimate supply and demand for their listings, allowing them to maximize rents. The Richardson, Texas-based company employs statistical models and nonpublic data, much of it submitted by its property management clients, to make its estimates. The Justice Department is concerned that RealPage’s software is used as a shield for competitors to exchange sensitive pricing data that their rivals would otherwise not be able to access.

The civil probe is ongoing, and there are class-action lawsuits in the works that name a lot of the biggest rental players, including Greystar, Lincoln Property Company, Equity Residential & Cushman-owned Pinnacle Property Management Services. (For a deep dive into the whole saga, start w this ProPublica investigation that set it all off. And if you want to get super wonky about property-management softwares, check out this primer from Thesis Driven.)

To me, this rhymes with how much attention President Biden 🦅 is giving the resi commissions lawsuits; he’s positioning his administration as a crusader against anti-competitive behavior, particularly when it comes to housing.  

Carbon-free Cement Startup Gets DOE Boost

This is a BFD: The DOE is investing $189M to help Brimstone, a startup that manufactures carbon-free cement, build a commercial-scale plant 🏭️ . Cement is a core ingredient in concrete, which by some estimates is 7-8% of global carbon emissions, so the implications for the development and construction industries are enormous. I wrote about this company in ‘22 when it raised a $55M Series A, pre-revenue – which tells you something.

There’s heaps of regulatory momentum on the side of companies trying to decarbonize the built environment 🥗 . Both California and New York have moved to address emissions from concrete and tackle energy emissions from buildings in general, and as I mentioned in Monday’s edition, there’s a lot of pressure on European building owners to meet tighter emission and energy standards.

Quickies

• Charles Cohen, bigwig NY developer and occasional film producer (he owns the charming Quad Cinema 📽️ in the Village), defaulted on $534M in debt tied to 7 properties. The lender on the other side is a tough one to stare down: Fortress 

•  FINRA acting out the true bear case 🐻 for office: the regulator’s in talks to move to smaller digs (20K sf less) in the West Loop.

• “The rent stays like before!” 🤌: Why office rents aren’t budging 

• Last summer, Presidio Bay (Cyrus Sanandaji) made one of the few big downtown SF office acquisitions post-pandemic. It’s now trying to resort-ify the joint, proposing a rooftop bar, sauna rooms, co-working spaces, and, of course, a cold plunge 🥶 

Skyscraper Hunting on the Cheap

Used to be that foreign investors 🌏️ made their mark by paying trophy prices for American skyscrapers. The Japanese 🇯🇵 in the 80s, the Arabs 🇦🇪 in the 2000s, the Chinese 🇨🇳 in the 2010s. Many of these deals (To wit; Chrysler, 245 Park) did not go well. Nowadays, though, foreign investors are here to bargain shop, taking advantage of skyscraper distress to buy in for cheap. The latest: Korean 🇰🇷 investor Consus Asset Management is in contract, per Bloomberg, to buy the 1M sf tower at 777 S. Figueroa in DTLA for $145M – or about half the $289M outstanding debt defaulted owner Brookfield had on the property. That’s about $145/foot, in line w what Carolwood paid ($134 a foot) for the AON Center in the same submarket in December.

Brookfield’s DTLA troubles have been well-examined (see here) as has its leadership’s nothing-to-see-here attitude towards them. “Anything that’s gone on with us, it’s just regular business,” top dog Bruce Flatt said last year. It’s small and not relevant to the overall business.” 🤷 

Property Management 🐇 Hole

Readers of The Promote who want to nerd out on property management (the few, the proud) will enjoy this newsletter from Peter Lohmann. He’s got rankings of the top firms, tips from the trenches, and even the occasional scoop. 

Madam, I’m Adam

Adam Neumann wants his bankrupt company back. He recently submitted an offer of $500M+ for it, per WSJ. Dan Loeb is not backing him on the bid, which could rise to $900M, per CNBC . How he’s financing the deal remains up in the air. I’m too busy smiling to have anything else to add. 🍿🍿 🍿

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