SF Multi Deathmatch, Mega LPs Tell All & Arbor's F-Word

SF Multi Deathmatch

Uneasy lies the head that wears the crown. When Ballast Investments (with Brookfield’s war chest) took control of the mammoth Veritas distressed apartment portfolio in December, it became San Francisco’s multifamily alpha dog. But even as it was putting together the deal of a lifetime, it was dealing with its own fires: A separate 2,100-unit portfolio that Ballast and Goldman Sachs had dropped $1.1B on between ‘17 and ‘20 was in trouble.

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SF Multi Deathmatch (cont.)

I had heard that Goldman had stopped funding the portfolio, and the JV’s lenders were gunning to either take back the portfolio or sell the debt via Eastdil. The SF Business Times now reports that at least for one big chunk of the holdings, it’s the former: RBC 🇨🇦 is negotiating a deed-in-lieu (nice explainer on them here) for a 1,200-unit portfolio that could go down next month. The bank, which issued $688M in debt on those assets, may tap Hamilton Zanze to operate the portfolio on its behalf while it figures out next steps.

Perhaps a healthy degree of stoicism is required to play this game. “I got them in the same way that I lost them,” Veritas principal Yat-Pang Au said last month of his own operatic losses to Ballast. “At least we’re not the largest anymore.”

Short-seller Drops F-Word on Arbor

“Fraud.” Short-seller Viceroy has escalated its campaign against Arbor Realty Trust, alleging that the key multifamily lender engaged in an “elaborate and intentional con” in which it used an off-balance sheet entity to buy properties that Arbor had foreclosed on. Such shenanigans, Viceroy alleges, allowed the lender to avoid writing down loans.

“Arbor has fraudulently overstated the value of its loan book through undisclosed, off-balance sheet, related party transactions,” Viceroy said in its new report Thursday. “Arbor retains 100% of the risk involved in these transactions.”  

Viceroy called out a Houston portfolio (Westchase) deal as emblematic of Arbor’s strategy. Arbor foreclosed on the portfolio, and then the off-balance sheet entity – which Viceroy said shares an address with Arbor and is helmed by its former VP of Originations – acquired it. Arbor didn’t disclose the move in its latest quarterly results, per Viceroy, but told Bloomberg that “we want to emphasize that this was a second quarter event and as a result will be appropriately disclosed, with all the correct facts and details, in our second quarter filings.” 🍿 

Lutnick’s RoboCop Shtick

CEOs of publicly traded cos have to be a tad PC, but the beauty of being chairman is you can go all the way. Howard Lutnick threw his own particular brand of masala 🌶️ into the brokerage-talent conversation (see here and here), declaring that his Newmark is a “talent-first” organization and recounting a recent poach 🦬 of a top producer from CBRE.

In response, CBRE had put out a statement emphasizing its platform. “Sensible comment. Very corporate, straight-jacket,” Lutnick recalled at TRD’s forum Wednesday, licking his chops. “We put out our statement saying our people are our platform.” He added that while his rivals think of technology as a force of displacement, “we think RoboCop – technology arming our brokers.” He also went full Cassandra on the capital-markets crisis, predicting that “every single weekend a regional bank is going to go bye bye,” turmoil that would create deal flow for firms that are licensed to do business with govt. agencies like the FDIC (i.e. Newmark, not Cushman 👏 ). Newmark has levered up to chase some of that action.

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Mega LPs Tell All

Mega LPs – pensions, sovereigns, insurers etc. – rarely talk about how they shape RE fund strategy, so this terrific PERE piece is as close to a tell-all as we’ll get. Those who sit on limited partner advisory committees (LPACs) broke down some of the key issues coming up w RE fund managers.

• Extensions: Avg. time in market for a private RE fund has jumped to 22 months for funds closed in ‘24 (compared to 13 mos for ‘18-era funds). LPACs are generally ok with fundraising extensions, provided the GP has made good $$ raising progress and the extension is just to reel in the last few investors. As for time in market, “if they need more time because it is not the right time or best time to exit, we are willing to accommodate” said QIA’s Navid Chamdia 🇶🇦 . LPACs may ask the manager to slash/waive management fees for that additional period, to avoid “leakage of your IRR as you continue to pay fees on the invested capital,” said Meketa’s Derek Proctor.

• Acquisitions: There’s been friction here, with LPACs turning down deals that managers wanted to do because other sectors may offer greater returns: “If you can do logistics at 11 [% IRR], how attractive is that residential 8 or 9?” said APG’s Robert Jan-Foortse

• Valuations: “Some managers are very good at adjusting their valuations to reflect the current market,” said Chamdia, while others are “taking a wait-and-see approach, which can lead to debates.”

• Internal conflict: Institutional investors’ longer time horizons ⌛️ can clash with what UHNWIs and family offices want. Also, some LPAC members may be co-investing in the next fund while others may not, creating potential conflicts around pricing and timing              

NIMBY Karma in Chicagoland

Love this so much. The Cook County village of Northbrook had put the kibosh on development plans at a shuttered 127-acre golf club, with the village president at the time saying that “there is nothing Northbrook really needs.”

That kind of militant NIMBYism scared off a couple investors, but Colliers exec David Kahnweiler decided to take a shot: He paid $9.8M (a paltry $77K/acre 😂 ) for the property in ‘18, and then, he waited. Now, he’s cashed out big, selling the property for $80M, per Crain’s. The buyer enabling that monster return is proof that God does have quite the sense of humor: the DuPage Water Commission, which intends to build a massive water treatment facility on the site👏. Northbrook, whose pearl-clutching leadership didn’t want single-family homes, senior housing or anything else, won’t have much juice to stop this, given the eminent domain card the water commission could play. As Chicago-area multifamily investor Iman Jalali put it: “Is this one of the greatest stories of NIMBY karma?”

A Question of Value: BREIT Takes Heat

Bethany McLean, chief chronicler of the Enron scandal, dove deep into the $114B elephant 🐘 in the room: Blackstone’s private vehicle, BREIT. Her reporting asks hard if somewhat theatrical questions about how the firm values its holdings: cumulative returns for RE funds in sectors BREIT is concentrated in plummeted by 30% in ‘22, per analyst Craig McCann, yet BREIT claimed its value increased. Another investor McLean cited referred to Blackstone’s appraisal process as “mark to magic.” 🪄 The piece also quoted McCann saying that last year’s UC $4B BREIT deal, rather than being a ”validation” of BREIT’s strategy as Blackstone claimed, “strongly supports the view that BREIT is a terrible investment.” (McLean wrote the piece for Business Insider, known for spicy takedowns, so it’s worth chasing the piece with this critique of it.)

Meanwhile, NYT’s Dealbook (way more legit than its regular business section) also focused on BREIT, particularly on its asset valuation process. And even more from independent journalist Roddy Boyd here. 

Quickies

• 📽️ Check out our mini-movie on the rise & fall of Rafi Toledano 

• Neil Shekhter’s already gutted WS (background here) is looking to unload a 399-unit Santa Monica multi portfolio 

• “If not, we can hand out cyanide.” A fantastic read on the warring Jogani brothers, who control a mammoth SoCal rental portfolio (est. NOI $137M 😅 )

• Shaya Prager loses Fort Worth's tallest tower to lender (something v interesting going on w Shaya – bears closer examination 🔍️ )

• Sony to sell Paramount Pictures’ iconic 65-acre LA lot if its $26B play (w Apollo) to buy Paramount goes through 🍿 

• Yoel Goldman sues to stop foreclosure sale bc the auction was slated over Passover 🥖 

Unquotable Quotes