Irregular Around the Margins, Nightingale/Crowdstreet Telenovela, Miami's Raunchy Opulence & Rent Control Rocks NYC

Irregular Around The Margins

Playing cricket (a better baseball) growing up, the kid you most had to worry about wasn’t the ace on the opposing team, but the kid who owned the only bat. If he got out, he’d get mad and leave, taking his 🏏 with him. So the game within the game was to figure out how to keep him at the crease, even though he was terrible .

Everyone knows multifamily syndicators are underwater. Some portfolios, were they to trade today, would go for well below their outstanding debt. The Rises and the Tides are making trade publication headlines with the same gusto that the glitterati hit Page Six. Trepp is the new Zyn.

But still, the promised 🌊 of defaults hasn’t happened. Workouts, even for the most sordid portfolios, are underway. One source estimated up to $500M in completed or active workouts for Tides, noting that its primary backer, Scott Waynebern’s debt fund MF1, “literally can’t afford for Tides to go under.”

“Everyone’s being delusional – whether on purpose or by accident,” the source added. 

The reason for this queasy alliance is how the debt funds are bankrolled, most commonly through CLOs and through warehouse lines funded by “bulge bracket” (JPMorgan, Citi, Goldman, etc) banks. On warehouse lines, the debt funds enter into “Repurchase Agreements” – which are 65-80% advances against the 70-80% LTV loans the funds made to the syndicators (leaving the banks at a v palatable 50% LTV.) The lines are usually cross-collateralized, which means that an asset that’s collateral for an initial loan is used as juice for subsequent loans. They’re also typically at least partial recourse, which means the 🏦 can come for you if things go bad. And, the poisoned cherry on top: many warehouse lenders have cross defaults across warehouse lines, which means if you as a debt fund drop the ball with Bank A, Bank B can pull the plug on their own line. (The debt funds risk being margin called, which would wipe out their equity and potentially put them in crisis – recall that debt fund Ladder Capital needed a Covid-era bailout from Koch Industries, which, in the words of one source, “wrote up a fuck-you type pref.”)

On CLOs, it’s a similar story: due to the unwritten code that CLO sponsors will buy back bad loans at par, the debt funds are incentivized to modify terms to avoid default.

What these dynamics mean is that debt funds are forced to be on their best behavior 😇 , even in the face of rascally borrowers. Some debt funds are resorting to “pulling loans off the line,” i.e. using their cash to pay off their warehouse lenders banks on that particular loan, holding the debt unlevered. (Some debt funds, like Arbor, have been shoring up cash, which will help, but it’s a lot to take on.)

Meanwhile, the borrowers will tout workouts, slip on their rose-colored Vision Pros and assure the market that things are getting better. Left unspoken is their hidden source of leverage, the convoluted capital structures that make them, in schoolyard terms, the ones who own the bat. 🏏  

The Rent is Too Damn Low

The BC/AD of being a New York rent-stabilized landlord has to be 2019, when New York state lawmakers threw out the playbook on how landlords could monetize such properties. The state slashed how much rents could be raised after renovations and ended vacancy decontrol, a mechanism by which landlords could take vacant RS units out of the program.

Apocalyptic chaos ensued. Major landlords and speculators (vividly, Isaac Kassirer) went under, while mom-and-pop landlords found the numbers no longer worked. They tried everything to run it back, including the Supreme Court. And in the meantime, the market has ceased to be a functioning market.

In an extensive new look at the current situation, Bloomberg cited an analysis by distressed debt investor Maverick (which btw is doing some really interesting content things) that found the value of NYC’s RS stock is down $75B since ‘19. At street level, you’ll see examples of this pop up all over: landlords are taking ✂️ of as much as 60%. Even Blackstone, whose $5.4B purchase of the 11,200-unit Stuy Town was seen as the coup of coups ( 🐐 tick-tock of the acquisition here), is having a rough ride at the middle-class bastion.

Meanwhile, the market for market-rate rentals is chugging along. Apollo just did a $146M refi for a 37-story UES rental owned by Qatar, RXR and GO (Josh Gotlib/Meyer Orbach JV), while Gotham and Carlyle just paid $265M for Kalimian’s 43-story tower near Lincoln Center.

Poll: A Life Well Lived

Nightingale Telenovela

If there was a TCM-type channel that just showed Nightingale content 24-7, I'd be the first subscriber. (It’s too byzantine a saga for me to recap, but you can get up to speed here.) The latest episode, via Bisnow, looks at CrowdStreet, the “institutional-grade” crowdfunding platform that neglected to hold the funds in escrow and instead relied on scout’s honor 🫡 . Now, investors who got into Nightingale’s deals via CrowdStreet are trying to force the platform to refund all of the money they invested through the platform. They’re also seeking damages and an injunction against CrowdStreet that would bar it from marketing securities.

“Not having an escrow account to hold those funds subject to closing is the most catastrophically bad due diligence fact you can have in a case like this,” one of the plaintiffs’ attorneys told the publication.

Raunchy Opulence

The FT’s Josh Chaffin is out with a fun snapshot of Marc Roberts, the 🥊 promoter turned condo impresario who runs E11even, Miami’s answer to Atlanta’s Magic City (nominally a strip club, but at its ❤️ a deal flow paradise). This being Miami, the strip club has become an anchor for 3 luxury resi towers (collectively ≅ 1,500 units), developed by Roberts in partnership w Michael Simkins and Kevin Maloney’s Property Markets Group. This being Miami, those towers have crushed it with buyers.

Before E11even, the site was home to Gold Rush, a staple of the city’s lusty circuit. To approach the seller, Roberts used “a beard,” who masqueraded as a rep for an athlete eager to own a strip club. Pushed for proof of finances, Roberts was even able to procure a brokerage account from a famous athlete showing $51M in securities. Much of the dealmaking was done with the seller on his deathbed.

“Every day I’m on pins and needles because I know somebody else could get word that this guy is selling and people come out of the woodwork,” Roberts recalled. “Pins and needles, pins and needles, pins and needles.”

Roberts took pains to emphasize E11even’s more genteel approach to nudity. “Why is half our clientele female? Because it’s clean. It’s clean fun,” he said. “We have Cirque du Soleil shows.”

(Caveat: I was at E11even in ‘21 for the launch of the second tower and definitely felt the raunch.)

Splashy Debut for Blackstone Cub 🐯 

Pretty meaty 2-decade run at Blackstone for Tyler Henritze, the golden boy of “secular tailwinds:” Motel 6, Hilton 🏨 (HoF deal), Cosmopolitan (in at $1.7B, out at $5.7B, most profitable single-asset sale for the firm), $10B acq. of QTS (now being touted by firm as their lens into the Gen AI boom). He struck out in May to launch his own thing, Town Lane, and the initial fundraising numbers are in: a monster haul for a first-timer: $750M in and on pace to raise $1B by Q2, per WSJ.

(Thinking of putting together a list of Blackstone “cubs” in a future edition. Meanwhile, check out my attempt at documenting “Real Estate’s Paypal Mafia” below)

Unquotable Quotes