Newmark’s MAGA Main Man & Multi NPLs Skyrocket

Newmark’s MAGA Main Man

Newmark chair Howard Lutnick, who has injected pizzazz, big money and a touch of ruthlessness into the brokerage business, is applying that playbook to a much larger stage: the race for the White House. Lutnick has emerged as DJT’s chief booster on Wall Street, accompanying the former president and GOP nominee on campaign rallies, fundraising from fellow titans and setting the stage for another Trump administration – and perhaps even a role for himself within it.

Inside Icahn’s Failed Big Short 🎥 

Wall St. titan Carl Icahn had set up a yearslong bet against malls, a trade so potentially lucrative it had been dubbed by some as the “Big Short 2.0.” Using credit-default swaps, Icahn bet against a mall-heavy index, calling the short “one of the best I’ve ever seen.” However, he was battling w/ monster money managers such as AllianceBernstein, and things didn’t quite go to plan: Icahn abandoned his short last month, decrying the game as “rigged.” Our short film breaking down the trade, Icahn’s conviction and what went wrong (hint: special servicers!) is now live on X. Hope you enjoy it – we’re going to do more of these video breakdowns at ten31, so tell us what worked/didn’t for you.

Lutnick (Cont.)

In recent weeks, Lutnick accompanied Trump to plug crypto investments, served as his hype man at a Minnesota rally, threw him a fundraiser at his Bridgehampton estate, and accepted a role as the co-head of Trump’s transition team, per a new Bloomberg dive. Like Trump was in New York real estate, Lutnick was long considered an interloper in the world of high finance: his rough-around-the-edges, charismatic carnival-barking approach didn’t sit well w/ the establishment, and though he’s now one of them, he carries a similar chip on his shoulder. It’s unclear what role he’d have in a potential Trump administration – sources speculated to Bloomberg that he might become the US ambassador in Jerusalem, or even Treasury secretary. Any top job would likely require him to divest his interest in Newmark, which has shot to the top of the office I-sales charts, is on seemingly every other mammoth debt deal, and has seen its stock nearly double over the past year – Lutnick has Zuck-esque 10:1 voting shares in the firm.

Why do this? There’s power – which Lutnick has long had – and then there’s proximity-to-the-president-type of power, which opens up a whole new set of global doors to business opportunities and capital sources – look at what Steve Mnuchin and Jared Kushner have done post WH and you get a sense of where Lutnick might be going.

“If the president asks you to serve,” Lutnick said in July, “you have to say yes.”

Walmart’s 3D Printing Litmus Test

3D printing in construction is one of those “dream no small dreams” ideas that get VCs all fired up. If realized correctly and at scale, goes the thinking, it could transform the built environment, making projects much cheaper and faster to build, and even putting a big dent in the housing crisis.

In the real world, however, we’re still a ways away from that. WSJ has a look at Walmart’s experience building an 8,000-square-foot space at one of its supercenters in Tennessee, in partnership w/ 3D printing startup Alquist. In a nutshell: the job was well behind schedule, the Volunteer State’s heat and humidity glitched up the technology, and the overall costs were pretty much the same as a regular job.

“There’s a number of things that we’ve learned,” Alquist CEO Patrick Callahan told the publication. 3D printing works by layering material via a computer-programmed robotic arm. Alquist’s pump, however, melted in the heat, and the fast-setting nature of the material meant there was little forgiveness built into the process. There were cultural barriers, too: The project tried, in the words of an exec for a Walmart GC, to bring together “traditional construction guys” w/ “new technology guys and gals.”

The startup furthest along on this journey, at least in terms of funding and momentum, is Icon, which raised nearly $400M at a $2B valuation in the peak ZIRP days and is doing pilot projects w/ investors NASA 🌒 and Lennar. Icon’s founder Jason Ballard has enjoyed a gushy run of press – Ballard seems to have absorbed Sam Zell’s insight that having a media totem of some kind – motorcycle 🏍️ in Zell’s case, cowboy hat in Ballard’s – gives the press something to latch onto – the hat is prominent in every article about Icon. 🤠 

Banks’ Multifamily Problem

Though total bank CRE NPLs are relatively static from Q1 to Q2, multifamily NPLs are up by a whopping 51% from last quarter, according to a new analysis by Rebel Cole, the prof who’s been dropping those much buzzed-about analyses of banks’ CRE exposure. Over $5.7B of multi loans were nonperforming in Q2, compared to $3.8B in Q1, per the analysis, which used data from publicly available call reports. Total CRE NPLs were at just under $42B, compared to $37B in Q1 (up 12.4%). Cole broke down the data by bank size, and identified the megabanks ($100B+ in assets) as the driver of the multi NPL spike.

“Most likely, this means that the mega-banks are more accurately valuing their CRE assets and classifying them sooner rather than later,” Cole wrote, “whereas smaller banks continue to engage in "extend and pretend."

Zooming out of banks: Over the summer, MSCI ID’d $81B of apartment loans at risk of distress, compared to $67B for offices. CRE CLOs (around $75B in O/S debt) remain the key pain point: a CRED iQ crunch showed that distress in that product hit 10.8% in July. Remember that CRE CLOs - players in the space include Ready, Arbor, MF1, and Benefit Street – were one of the key mechanisms to juice the multifamily buying spree of ‘21/22, so this tracks.

Quickies

• Nvidia scouting for 300K sf office in Austin 

• Testing a bottom-feeding office bet 

• Shooting your shot: Seller “desires to be compensated” if upzoning goes through

• CA bill restricting warehouse development heads to Gov’s desk

• Good CPACE color here from Barings’ head of construction lending

ten31 Chicago Happy Hour: Tuesday 🍾 

Chicago is a proper American city, with all the requisite trappings of greatness: architecture, waterfront, sport, music, food (minus pizza), skullduggery, high & low finance, and of course, a major CRE scene. Tomorrow, Tuesday 9/10, I’m co-hosting a Happy Hour in River North w/ the inimitable Iman Jalali. Please join us if you’re in the area for some drinks, bites, and CRE spice. RSVPs help us out w/ the logistics a ton, so please do so here.

Unquotable Quotes