Shvo Business & A Record Condo Financing

No Business Like Shvo Business

Many developers are short kings with tall bank accounts, schlubby nerds who buy themselves cultural cachet. And then there is Michael Shvo, long an object of fascination among New York real estate bigwigs primarily because of how much he stands out from them. Shvo, who NY Mag once described as “a perma-tanned Israeli with an action-figure physique,” made the uncommon transition from wildly successful resi broker to developer, treating big-ticket RE investing like a sport of trophy hunting. He wouldn’t be caught dead in a tux at the REBNY gala, but you’re likely to spot him cuddling w/ master chef Daniel Boulud 🐟️ and leather daddy ⛓️ starchitect Peter Marino.

With backing from Deutsche Finance (not DB) and German pension fund BVK, Shvo amassed a $3B portfolio in just a handful of years, focusing on destination addresses: Chicago’s Big Red, SF’s Transamerica Pyramid, New York’s Coca-Cola Building. He did the same on his resi projects, going ultra-high-end in Miami Beach, Manhattan and Beverly Hills. The thesis: the very best properties are largely immune to the whims of the market.

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Shvo (cont.)

That thesis is being severely tested: In one of those coincidences that are the bane of newsrooms, both WSJ and BI dropped eerily similar articles looking at Shvo’s portfolio-wide struggles, from lukewarm sales at his Mandarin Oriental projects to losing marquee tenants at Transamerica to broken partnerships.

BVK recently hired Corcoran for a market study of the Mandarin Oriental project in NYC, a move that suggests, per BI, that the pension fund may be concerned w/ the intel they’re getting from Shvo. The pension fund told BI that its investment manager Deutsche Finance "works to our knowledge together with Shvo on a project-related basis,” not exactly a ringing endorsement.

At the Raleigh, where Shvo was initially running a co-op esque vetting process on buyers (akin to what Steve Roth did at 220 CPS), he has abandoned that approach. At Transamerica, occupancy is at 50%, per CoStar, though Shvo told WSJ that it’s actually closer to 70%, w/ “multiple leases” signed between $200-$250 psf. The Big Red bet may be the one in the worst shape: the Shvo-led JV paid a monstrous $376M for the tower in ‘20, compared to seller John Buck’s $108M ‘16 purchase price. It has $240M in CMBS debt on it, but cash flows are down, property taxes have jumped by $4M, and anchor tenant Northern Trust is doing a wave of layoffs.

Shvo is projecting calm and emphasizing the long game. “I wake up in the morning for one purpose—to elevate super prime real estate,” he told WSJ. “With that comes vacancy. With that comes slower sales pace. But that’s OK. The end result is that the buildings are worth a lot more money at the end of the day.” 🤷 

Record Condo Construction Loan

PMG just landed a mammoth $668M condo construction loan – the largest in Florida history – from (who else?) Bank OZK for its Waldorf Astoria supertall in downtown Miami. The bank is YOLOing harder than any construction lender active today – its CRE exposure is more than 6x its total equity, per a recent analysis – but this looks like one of its surest bets, given that the project is >90% presold, something that OZK emphasized in its statement. OZK is providing the financing alongside Related Fund Management.

OZK said that Miami has surpassed New York 🗽 as the bank’s biggest market, an unthinkable scenario just 5Y ago. Other recent biggies in the area: Mast Capital scored $600M from Banco Inbursa 🇲🇽 and Ascendant Capital Partners for Cipriani Residences in Brickell, and Jorge Perez’s Related Group got $400M from Madison Realty Capital for a Fisher Island condo project.

(Aside: I wonder what kind of loan this epic would need.)

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Blackstone Sweetens the Pot

“If you want a lover, I'll do anything you ask me to. And if you want another kind of love, I'll wear a mask for you.”- Leonard Cohen, I’m Your Man

BREIT needed something to sing about after a tough year combating investor redemptions. The win came in the form of a $1.6B deal announced in April to sell a student dorm portfolio to KKR, done at a 7% premium that Jon Gray described as “inconvenient facts for our critics.” But to barrel the sale through, BREIT offered up seller financing, the first and only time that it’s done so, per a new report from Bloomberg. The financing, which Blackstone offered at below-market rates – 6.5% pref – was combined w/ an offer for a buyer to take over $800M of low-interest debt that Blackstone had previously secured on the portfolio, for a total debt package of $1B.

“More and more of that below-market financing is being offered in the market to juice 🧃 the last dollar of purchase price,” said Madison Realty Capital’s Josh Zegen, speaking generally and not about BREIT in particular. Seller financing can “make a deal work that otherwise seems to be stalled or seems to be undoable,” investment banker Nicole Schmidt told the publication. Of course, it also means that BREIT is deferring some of the proceeds from the deal.

Bloomberg added that Blackstone has been sensitive to how BREIT is trading on the secondary market: when BREIT shares were trading at a 15% discount on platform Lodas Markets, Blackstone execs relayed their concerns to Lodas and slow-rolled the trades 👀 

Macerich’s Santa Monica Smackdown

The fat lady has sung: Macerich is walking away from Santa Monica Place, handing the keys back to its lender Wells Fargo after defaulting on its $300M mortgage. “Ultimately, trying to figure out the end game was just too obscure,” Macerich CFO Scott Kingsmore told WWD, giving up on a long fight to hold onto the property that saw it buy a rate cap and work out an extension. The mall’s leasing history reflects Santa Monica’s retail woes: a movie theater came and went, as did Bloomingdale’s and the Disney 🐭 Store.

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