Quiet Kings of Capital Pt II & NYCB's Multi Mess

The Quiet Kings of Capital: Part II

“Money is like fire, an element as little troubled by moralising as earth, air, and water. Men can employ it as a tool or they can dance around it as if it were the incarnation of a god . . . It acquires its meaning from the uses to which it is put.” - Lewis Lapham (RIP)

One, a guy tasked w/ managing the wealth of Michael Dell & his friends. The other, Warren Buffett’s favorite banker. Put them together, and you’ve got one of the biggest nonbank RE lenders in the game. The painfully named BDT & MSD Partners did $4B+ in deals over the past 12 months, activity that warrants it a mention in The Promote’s snapshot of some of the most active alt lenders. We’re doing this as a Godfather-style trilogy, so if you missed Pt. 1 in Monday’s ed, you can find it here.  

Alt Lenders Pt. II (cont.)

4) BDT & MSD Partners

Principal: Gregg Lemkau, Byron Trott. RE guys: Jason Kollander and Adam Piekarski
HQ: Chicago 🐻 & Manhattan 🗽 

Dell must be quite the convincer, because Lemkau left some perch – co-head of I-banking at Goldman – to come run his money in the thick of the pandemic. Trott is also a proper Goldman guy: he rose to vice chair of I-banking and gained a rep as Buffett’s go-to moneyman before leaving in ‘09 to start his own shop. The firms, BDT & MSD, combined early last year and have maintained MSD’s CRE tear.

Now at $60B total AUM, the firm raised a $3.2B RE credit fund in Dec. Along w/ Apollo, it provided $536M for Jeff Gural and Nathan Berman (our snapshot of the alchemist here)’s office-resi conversion of 25 Water Street, which at 1.1M sf will be the largest-ever such project in the U.S. In June, it gave Jeff Levine’s Douglaston $270M for an UES resi project. The firm’s largest deal (as MSD) to date looks to be the late ‘22 $1B refi of Boston’s State Street Financial Center, for Louis Kestenbaum’s Fortis Property Group and 🐐 🐺 David Werner (more on him here) One of its headline-grabbers, the $285M for CGI Merchant Group’s Waldorf Astoria in DC (fka Trump International Hotel) has gone south: CGI defaulted in Feb. and the property is back to the auction block next month.

5) Benefit Street Partners

CEO: David Manlowe. RE guy: Michael Comparato
HQ: Manhattan

Benefit Street Partners (total AUM $74B) is a big player in the multifamily-heavy CRE CLO space – it closed a $900M vehicle in October – and per a CRED iQ analysis in March, had among the highest amount of CRE CLO loans O/S – its share of delinquencies at the time, however, was far lower than some of its peers (Starwood, Arbor, Greystone).

In July, the firm did a $210M construction loan for a Chinese JV’s Weehawken condo project. It also bankrolled Namdar and Empire Capital’s maverick bet (read: The Billionaire and the Great Neck Strivers) on Manhattan office, but at least one of those deals has gone south.
 
6) KKR
RE Guys: Ralph Rosenberg, Matt Salem

In Feb., Salem, the firm’s head of RE credit, did a tasty bit of reverse engineering. Banks hold about 50% of CRE debt, he wrote to clients. If in the aftermath of regulatory scrutiny and regional bank failures that share were to drop to 40%, it would leave a mouth-watering $500B hole in the market. KKR’s been busy on the equity side, snapping up Lennar’s Quarterra arm for $2.1B last month, but it’s no slouch in debt either: its pipeline has swelled to $15B, up from $10-12B last year, per Salem. It’s also ramping up its special-servicing arm (K-Star). Not everything is going great, of course – it took over a Silicon Valley office complex from a Goldman/TMG JV this month in a deed-in-lieu.

(Bonus: Catch up on our chats w/ a federal regulator as he explains how he thinks about loan workouts, and even walks us through a bank health exam)

NYCB Can See (Bad Stuff) Clearly Now

NYCB has completed a review of 4/5 of its multifamily loan book, giving it a clearer picture of how ugly things are: Multi delinquencies were up 767% (not a typo) from Q1; charge-offs (written off as losses) were up 590%, and non-accruals (i.e. no interest being paid) were up 134%. Joseph Otting had promised a simplification of the bank’s holdings when he took over in March, and is making good on that: the bank is selling its resi mortgage servicing business for $1.4B to Mr. Cooper, and just completed the $5.9B sale of mortgage warehouse loans to JPMorgan.

“Whatever issues there are in the loans we’ll be able to work through,” Steve Mnuchin, who led the syndicate that pumped $1B into the struggling lender in March, said at the time. Mnuchin had called out its New York office loan book as the main pain point; in Q2, the bank reported $349M in net charge-offs, up 330% from Q1- more than 2/3 of that came from non-multifamily CRE - i.e. office & friends.

DTLA’s String of WTFs

Is DTLA the country’s most woebegone major office market? Feels like it’s getting bodied left & right. 3 deals that tell the sorry tale:

• The note on Brookfield’s 777 Tower – one of the buildings that the firm’s overlord Bruce Flatt dismissed as “not relevant to our overall business” – is in contract to sell for $120M, or just $117/ foot. When Brookfield defaulted on the building last February, it had about $289M in O/S debt. A $145M sale to the Koreans fell through in April. The new buyer, 1 source told CO, is a Chinese billionaire who’ll pay all-cash.

• Another nearby Brookfield former trophy, the Gas Company Tower, carries $380M in O/S debt and is slated for foreclosure auction Aug. 16. But CO reports that LA County is trying to scoop it up before that. Meritz, the Korean firm that holds a piece of the mezz, is also a potential suitor. There’s a juicy comp angle here: JLL’s commission is structured as a “success fee” equating to 0.5% of the sale price if it fetches between $150M-$195M and 0.8% if it exceeds that. But a sale to the city or county cuts that sweetener.

• Heading back to the zombie megaproject that is Oceanwide Plaza: A stalking horse bidder of $500M had materialized, and though it missed a July 23 deadline to submit a bid, rumors of its death have reportedly been exaggerated. 🧟 

Quickies

• 🎥 Brookfield’s crown prince and the race to $2T AUM 🤴

• BBG’s Jon DiPietra, blacklisted by Freddie as part of its multifamily probe, is out - was their top NY appraiser

• Major developer Wood Partners says good night & good luck to the West Coast

• Paul Singer’s Elliott funding a new resi lender that wants to do $3B-$5B in annual deals

• Fuck, Barry, Kill: A wonk dives into Starwood Property Trust (the ten31 posse gets 40% off on an annual sub here) 

• Dealmaking is overrated: CBRE rips $130M profit on back of workplace ops, advisory work 🥱 

• Cold-storage REIT raises $4.4B in biggest IPO of ‘24 🥶 

• Barry Drillman faces Bal Harbor eviction for ripping ciggies 🚬 (the Snapple is what really gets me here)   

Malkin’s Big Buy in Trustafarian Hub

ESRT, best known as the owner of New York’s best-known skyscraper, doesn’t want to be thought of merely as a steward of aging office buildings. It paid $307M in late ‘21 for a majority stake in two Fetner-owned Manhattan rentals, and took full control earlier this year. Now, it’s dropping nearly $200M on one of the city’s buzziest retail corridors: North Sixth St. in Williamsburg. In two all-cash deals – one for 40K sf at $103M ($2,600 psf) and the other at $92M – it will expand its bet on a street it first entered last Sept. North Sixth has enjoyed a Fifth Ave-esque “winner takes most” surge in Brooklyn: even as many of the borough’s retail corridors have struggled, asking rents there were at $275/foot in H2 ‘23, per REBNY – besting even its ‘16 peak.

Unquotable Quotes