Oceanwide's Billion-dollar Boondoggle & Toledano Peaces Out

How “Landlord” Became a Bad Word

“I’m worth a fuckload of money, bro,” he declared, and we were off on one of the wildest rides in the real estate business. Raphael Toledano was young, he was ravenous, an Orthodox comet with patent-leather shoes. He struck the deal of a lifetime, a 26-year-old controlling a major rental portfolio in one of New York’s hottest neighborhoods. He had illusions of grandeur – “Gary Barnett has the easiest job,” he once said – and a history of leaping over ethical fences: assault charges, a fake law firm, serial allegations of tenant harassment.

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Toledano (cont.)

Almost as soon as he burst onto the scene, he was gone, losing his portfolio to his lenders and being banned from the New York industry for how he treated tenants. Catch up – trust me, you’ll want to – in this thread if you’re new to the tale.

Last month, he finally fulfilled a court-mandated order to liquidate his holdings, selling off an East Flatbush walkup for $5M. But I’d argue that his footprint remains: his actions contributed to the public perception of apartment landlords as “bad actors.” Given the way the media 🗞️ works – negative events tend to draw more dramatic/frequent coverage and are more likely to be weaponized – the stuff that sticks tends to be the dramatic, bad stuff. Think of Harry Macklowe’s illegal "midnight demolition" 🕛 of Times Square SROs in 1985, or Tishman Speyer’s ultra-aggressive destabilization playbook for Stuy Town, or Icon’s tenant-harassment settlement in 2017, or Steve Croman’s $8M settlement that same year.

Toledano’s actions - “when you go from zero to 60 in three seconds, sometimes you exceed the speed limit,” he once said – add to that unwanted legacy. When landlords wonder why they’re being demonized, it’s partly because of cases like these.

For Sale: A Billion-Dollar Boondoggle

An unfinished, graffitied megaproject that owes $400M to contractors, EB-5 investors and the government, smack in the middle of one of the country’s most challenging CRE markets: How’s that for a listing?

Oceanwide Plaza, the marquee 3-tower DTLA project of embattled Chinese developer Oceanwide Holdings, is going up for sale, per Bloomberg, subject to bankruptcy court approval. Colliers and Hilco Real Estate have the assignment, which will be as hairy as it gets: Oceanwide reportedly already pumped $1.2B into construction and claims the project is 60% complete, but not sure who would put stock in that math. Colliers appraised the as-is market value of the complex at $434M, with a buyer needing to kick in another $865M to finish the job. Oceanwide also claimed that 2 buyers were circling with $850M offers, but Colliers’ appraisers said “we did not place any weight on these offers.” 👏 

The project was slated for 500+ condos, an open-air mall and a 184-key Park Hyatt hotel, to be completed in ‘19. It was part of Oceanwide’s $3.5B spending spree across SF, New York, Hawaii and LA, a Chinese capital flex whose biggest legacy was a string of zombie projects.

Quickies

• 🎥 Analyzing recent cracks in the #LongMiami narrative

• How Indiana became a data center powerhouse

• Speaking of power…DigitalBridge’s Marc Ganzi says we’ll run out of power for data centers in 2Y (expect to hear “nuclear” come up a lot this year)

• REIT Brandywine gets hacked, reports data theft  

• Blue Owl 🦉 boss Marc Zahr wants to play in all boxes of RE debt: originate loans, buy notes, do CMBS deals

• Clarion sells Playa Vista multi to DivcoWest for $122M - but pockets just $115M after the city wets its beak 🐦️ w 5.5% ULA tax

• Developer Nate Paul is Travis County’s most delinquent taxpayer for 3rd straight year 🏆️ 🏆️ 🏆️ 

• What if Yardi just saw WeWork as a cheap asset to be milked 🐄 and resold? 

Out: Commissions, In: “Success Fees”

The Gas Company Tower, once a Brookfield trophy but post-default “not material” to the company’s business 🤷 , is set to hit the market with JLL. A court-appointed receiver tapped the investment bank brokerage to shop the DTLA property, but with a catch: instead of a standard commission, JLL is set to get a tiered “success fee” upon sale, per TRD.

• 0.5% if the building sells for $150M-$195M (so $850K on a $170M sale for e.g.)

• 0.8% if it sells for $220M+ (so $1.8M on a $230M sale for e.g.)
  

Mind you, that’s if it goes to a private buyer. If it sells to the city or county, JLL will get a flat 0.5% fee. The city, which is in talks to take 300K sf at the property, has expressed interest in buying the 52-story tower, per court filings.

That is some weird incentive design. Remember that JLL has made it clear that it’s now prioritizing “enterprise thinking” (firm > broker), so we’ll see how its dealmakers play this one.

Future-proofing @ Bloomberg HQ

Bloomberg LP is staying put at its New York HQ till 2040, and its 900K+ sf lease extension offers a glimpse into the leverage anchor tenants now have with landlords: Bloomberg will pay a minimum net rent of $88.7 psf and a max of $108.4, with the exact amount to be determined by Class A office market rates in 2029- the year when the extension kicks in, per Crain’s.

“We have certainty on the bottom as to what the rent would be,” said Steve Roth, overlord of both Vornado and Alexander’s, the REIT that owns the building. “Both tenant and landlord think this is a fair deal and a clever way of handling the future.” With this headache sorted, Roth can focus on figuring out what to do with the rest of his 20M sf NYC office portfolio: Meta is downsizing at 770 Broadway, leasing volume is down, and concessions are up.

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