Multi Syndicator S2 Comes in Hot & Fed Officials Punt

S2 Comes in Hot

Scott Everett’s S2 Capital, one of the biggest players in the much-scrutinized multifamily syndication space, is looking to raise up to $1B for a new nontraded multi-focused REIT, per PERE. Everett, who has so far avoided the wave of violent headlines in the space, is eyeing $100M in the initial closing and hopes to hit the $1B target in the next 5Y. It’s seeding the vehicle with 10K units – primarily in the Sun 🌞 Belt and Carolinas – that it says are valued at $1.6B. All of the investors in the 26 JVs that acquired the assets have rolled up into the private REIT, per the publication.

S2 (cont.)

The game plan is to acquire assets directly from developers, with a target IRR of 12%. The firm is also refi’ing its existing debt on the assets in the portfolio w a $1B Fannie Mae credit facility, per PERE. (I heard from a source familiar with the firm that S2 is closing today on a $350M refi for a bridge-loan portfolio at a 5.2% fixed-rate. The source said that the portfolio has no delinquencies or foreclosures, and that it’s seen 13% rent growth year-over-year).

There is going to be tons to unpack here (cross collateralization? book value or fair market value?) and we’re going to do it in upcoming editions of The Promote. Keep in mind that this is happening while many of Everett’s peers in the space are staring down mass delinquencies, losing properties to foreclosure, going into receivership, and being sued by their investors: The latest via TRD is that GVA’s Alan Stalcup is being sued by an LP, a private REIT called Overwatch, for allegedly fibbing about how he financed a San Antonio project.

“Everyone’s obsessed about office, but I think generally multifamily will shock some people in terms of what the losses could look like,” Everett told PERE. He estimates that “truly distressed” 😭 – S2 defines this as below debt yield threshold, not covering debt service, doesn’t allow for a takeout and has a non credit-worthy sponsor – multifamily loans could add up to $18B-$20B nationally. 

A Deep Discount in Denver

Cress Capital bought the $113M mortgage on a Denver office building for a major discount, at a price “approaching or at the pre-Covid land value,” firm principal Ryan Parkin told Bloomberg. Parkin wants to keep playing in the space, saying he has $1B to deploy in the next 12-18 mos and expects more bargain deals.

“When they’re trading at land value, there are multiple options you can pursue,” Parkin said.

The seller of the Denver debt was Ares, which is teaming up with RXR in New York on a distressed-office fund. This seems to be happening a lot - firms getting rocked in a space are also making big bets on others getting rocked.

Fed: We Good For Now

Two Fed officials who vote on monetary policy decisions said they’re in no rush to begin cutting rates.

“Growth is going strong, so there’s really no urgency to adjust the rate,” said SF Fed president Mary Daly, per Bloomberg. 3 rate cuts for the year are still a “very reasonable baseline,” she noted. Meanwhile, Cleveland Fed prez Loretta Mester said that she wants to see more evidence inflation’s dropping before cutting rates. She added that it’s a “close call” on whether fewer cuts will be needed.

The target range for the rate is 5.25%-5.5% at the moment.

Quickies

• Monty Bennett’s Ashford to delist from NYSE (to understand who Bennett is, read this)

• The Silicon Valley bigwigs behind California Forever score a big win in a $500M+ fight against Solano County farmers 🐄 , who they accused of price-fixing (If new to the moonshot that is CF, start here- an amazing primer)

• A glimpse into how lenders can enforce terms via loan doc language: “Unfortunately, you also deal with assholes which is why you need strong loan docs.”

• WeWork says it will shed $8B in rent obligations by the time it’s done with bankruptcy. (Remember that our boy Neumann is gunning to take his company back)

• Uff. Vanguard buys 91-acre office campus in North Charlotte for just $117M. Property (which holds a 700K sf new build office) was supposed to be East Coast HQ for an insurer but they bailed. (h/t @damonhemmerding)

• Blackstone’s BREIT failed to generate enough cash to cover its dividend in ‘23

Knakal Goes Direct

The news of Bob Knakal’s ouster from JLL wasn’t in his hands. So he made sure the news of his next move was. The veteran I-sales dealmaker is launching his own shop, and he chose to make the announcement from his “Map Room,” as effective a piece of physical marketing as I’ve seen in CRE. Knakal dropped his news at 7:30 a.m. on Twitter, with a video describing his new firm as a kind of “AI meets real estate brokerage” shop 🤔 . He also gave his news on embargo (i.e. you can’t publish before an agreed-upon date/time) to the trade publications, which were all over it – they all followed his announcement with articles posted 10m later. A great case study in having your cake 🎂 (controlling the narrative and messaging) while eating it too (legitimacy and reach through news coverage). 🫡 

I’m a little iffy on how the new venture will truly be AI-powered (not sure how leaving personalized voice messages and data analytics counts as AI), and whether Knakal is the right guy to lead that particular charge for the industry. But one part of his announcement I do think has legs: he’s launching an affiliate program ($1K annual fee) to formalize broker referrals. This seems like the right approach for a marketing machine like Knakal, and could be the first step to some sort of speaking-consulting-training Knakalvaganza that could actually be a great business.

Reminder- NYC Happy Hour This Thursday 🗽 

One of the most rewarding things about building this from scratch is the bonds you develop with the early audience: those who’ve supported, shared and contributed to the work 🥰 . The Promote is a completely different kind of animal – no bluster here, just facts – and I’d like to toast the community that makes it so. First happy hour is in New York City.

When: Thursday, 4/4, 4:30-7pm Where: Old Town Bar, 45 E 18th St. What: Drinks, bites, good cheer, CRE chatter (Off the Record, no dox), OG reader appreciation speeches

Would 😍 to see you. No RSVP required, just come and bring whoever. Yalla!

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