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Mortgage Fraud Szn & Branding Turns Radioactive

When rape allegations threaten your project, plus: Fannie tries to show it's serious

Author

Hiten Samtani
June 19, 2024

An Official Dilemma

Nicole Oge, Oren Alexander and Tal Alexander, co-founders of Official

“Products are made in the factory, but brands are created in the mind.” - Walter Landor

New development sales is the art of selling a buyer on a dream. The building is often just a hole in the ground, and you, the developer, are asking someone to pay $2K psf or more on the promise that the void will be filled with something special, a base from which to live an aspirational life. Your instruments to make the sale are luxury residential brokers, creatures who are expected to be walking embodiments of your brand. For a long time, no one fit the bill better than the Alexander brothers.

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Official (cont.)

Tal and Oren Alexander mastered the global circuit of wealth, schmoozing potential clients on the ski slopes of Aspen ⛷️ one day, the beaches of Art Basel the next. They built a new development powerhouse business at Douglas Elliman, then launched their own shop, Official, in ‘22. Developers saw power in the brand they had built: a boutique shop catering to the parallel universe of ultra-luxury.

Over these past 10 days, that brand has been shattered, after TRD reported on allegations of rape and sexual assault by Oren, prompting follow-ups from WSJ, Bloomberg, and NYT – outlets in which the Alexanders have long enjoyed fawning coverage. The vivid allegations read like the plot of a C-grade movie – identical twins, drugging drinks, pinning down, taking turns – and led to Oren stepping back from Official. The brokerage is scrambling to do a PR mop-up, insisting that Oren was merely a dealmaker and not running the show 🤷‍♀️ – never mind that the brokerage is very much built in the brothers’ image, as longtime industry observer Jonathan Miller points out in this excellent analysis of the situation. A snippet 👇️ 

There can be millions in fees and commissions at stake and the key requirement is that a marketing company needs to be trusted and effective at sales. As the saying goes, a chain is only as strong as its weakest link even if the other partners didn’t do anything wrong. My dad repeatedly told me growing up that the “only good partner is a dead partner” whenever challenging business situations would occur.

The business fallout is ongoing: Michael Stern’s JDS has dropped Official from its D&G tower in Brickell. A developer cannot afford to be associated w/ a toxic brand, particularly on a project like D&G where the brand is the focal point – read our analysis of the branded-condo game here. More developers may follow suit, particularly as the press continues to uncover more dirt.

Mortgage Fraud Szn: Guilty Plea & New Guidelines

Fannie Mae’s updated due diligence guidelines kicked in last week

The dominoes in the saga of Boruch “Barry” Drillman continue to fall: Aron Puretz, a Lakewood-based investor of Apex Equities, pleaded guilty Monday to his role in a $55M mortgage fraud scheme. Authorities alleged that between ‘16 and ‘22, Puretz and his partners in crime, including Drillman, “provided the lenders (and Freddie Mac) with fictitious documents, including purchase contracts with inflated purchase prices, fake financial statements, and other fraudulent documents.” On one deal, a Michigan office complex, Puretz and Drillman acquired the property for $43M, but showed lenders paper for a $70M acquisition 👏 . They arranged a $30M bridge loan to make it appear as if they had the cash to close. (Riverside Abstract, which has already been blackballed by Fannie, performed both the actual and the fugazi closings.)

Why stop there? The partners also allegedly created a sham entity, JPC Charities, in order for the properties to receive tax-exempt status. Puretz has pleaded guilty of 1 count of conspiracy to commit wire fraud, and faces a max (sentencing slated for 10/30) of 5Y in prison. (Drillman has already pleaded guilty.)

There are a dozen other sponsors under investigation, so expect more to come out. Meanwhile, bamboozled Freddie and Fannie are laying the smackdown in the form of bans, probes, and stricter guidelines for their licensed lenders. Per new Fannie comms effective 6/14 reviewed by The Promote, lenders will need to do more extensive screening of noob sponsors, scour for bad press/lawsuits, confirm sales are “truly arm’s length” and analyze sales history to confirm support for a property’s increased value. Things that you’d probably want govt.-sponsored entities to have been demanding from the get-go, but better late than never I suppose 🙏 

After an Embezzlement, an Extension

The owner of Atlanta Financial Center landed a loan ext. after the Nightingale deal blew up

The long-suffering owners of the Atlanta Financial Center, whose deal to sell the complex to Elie Schwartz’s Nightingale became collateral damage in real estate’s biggest-ever crowdfunding scandal, have landed a loan extension after kicking in more equity, per Bisnow. Sumitomo 🇯🇵 bought the tower for $222.5M in ‘16 and agreed to sell it at a $78M loss to Nightingale in ‘22 - per Nightingale’s OM on CrowdStreet 👏 , Sumitomo’s maturing debt made it a “forced” seller and enabled a lucrative deal for Nightingale’s investors. Lucrative indeed, but just for Schwartz – if somehow you’ve missed the extraordinary telenovela, start here 💃

Meanwhile, a trustee for Nightingale’s torched investors has managed to claw back $3.3M of Nightingale’s $5M deposit from Sumitomo, according to a copy of the settlement reviewed by The Promote. The argument made successfully by the trustee is that "debtors did not receive reasonably equivalent value for the transfers."     

Gentlemen, Start Your Rent Hikes

Rents in several NE and Midwest cities are climbing(Chart credit: Apartment List)

Take the Sunbelt and its explosive supply growth out of the mix, and a pattern emerges: rents are rising (modestly) across the Northeast and Midwest, buoyed by strong job growth and the least affordable sales market in ages, per WSJ. The trend muddles the fight against inflation, w/ Fed chair Jerome Powell saying “the housing situation is a complicated one” and adding that “the best thing we can do for the housing market is to bring inflation down so that we can bring rates down.”

Key nuggets:

  • Only 7% of tenants at AvalonBay properties left to buy homes in Q1 (compared to the avg 16-17%)

  • Large landlords are bumping rents on renewals by 4%+. Equity Residential, concentrated on coastal markets, is at closer to 7%

  • Big boys are making big deals for rental portfolios: We had the $10B Blackstone-AIR deal, and one I hadn’t seen before, Brookfield’s $1.5B purchase of 7,300 Sunbelt units from Starwood – Brookfield believes it can boost “cash profits” by 34%+ over the next 5Y, per a bond offering

Quickies

Unquotable Quotes

 “There’s a difference between wants and needs in life. Everyone wants to be successful, but at Matthews we need to be successful.”
- Kyle Matthews, on being built different.