Starwood Surrenders, Capital Hikes Clemency & RealPage Rentopoly

Starwood Folds Hand in El Segundo

“There’s $1.2 trillion of losses spread somewhere,” Starwood’s Barry Sternlicht, vociferous prophet of the office doom loop, declared in January. “Nobody knows exactly where it all is.” 🤲 Well, at least some of it is in Sternlicht’s LA area-holdings.

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Starwood (Cont.)

After failing to work out a deal on its $600M delinquent debt with Morgan Stanley, a Starwood-Artisan Ventures JV surrendered Pacific Corporate Towers in El Segundo via a deed-in-lieu (explainer of that process here). The new owners, per TRD, are Beacon Capital Partners and 3Edgewood, who snapped up a controlling stake in the $485M unpaid debt and converted that position to equity.

Starwood paid $605M ($380 a foot) to buy the 1.6M sf complex in ‘17 from BlackRock and GM Pension Trust. During Starwood’s loan workout discussions in March, it was about half empty and valued at $400M-ish. Starwood & Artisan also lost the property next door this summer to its lender MetLife.

Beacon is a huge (29M sf of office and life sci, $19B AUM) and well-known player in the market, but I wanted to flag the other buyer: 3Edgewood is the RE investment firm of Robert Sarver, the former owner of the Phoenix Suns 🏀 who was suspended by the NBA for misconduct in ‘22 – Sarver eventually sold his stake in the team to mortgage king Mat Ishbia. 3Edgewood has been buying up major office complexes across the country, including a 2.2M sf property in the Dallas metro area and a 3M sf campus in Houston. It’s also gunning to buy the former Groupon HQ in Chicago.

RealPage Rentopoly

Need to write much, much more about the RealPage antitrust saga – IMO it’s among the biggest stories in multifamily rn – but just wanted to share a couple nuggets for today that The Promote has learned via the lawsuit and sources in the mix.

• As far back as ‘20, landlords had started to question RealPage’s pricing power, power that some of them felt veered on monopolistic

• There are email chains connecting the landlords’ pricing people - and investigators are interested in those email chains

• Last week, RealPage added an opt-out option on its product, allowing landlords to receive rent reccs via purely public data (instead of w/ nonpublic data baked in).
  

  Reminder that RealPage customers own/manage 20M+ units worldwide, and many of the US’ biggest multifamily landlords and property managers are users. RealPage’s counsel has said it’s willing to tweak its product to address the DoJ’s concerns. More here and here.

Capital Hikes Clemency

Megabanks and their borrowers can pop one TUMS instead of two: Regulators that were about to impose a 19% hike on capital requirements for the 8 biggest banks have now slashed that hike to 9%, after extensive lobbying from the banking industry, per Bloomberg. Other large banks would face a 3-4% hike in capital requirements, while smaller banks ($100B-$250B in assets) will now be exempt from large portions of the new rules, which have a pretty terrifying name: “Basel III endgame mandates.” 💀 

“There are benefits and costs to increasing capital requirements,” Fed Vice Chair for Supervision Michael Barr said in a speech at Brookings. “The changes we intend to make will bring these two important objectives into better balance, in light of the feedback we have received.”

Here’s Bloomberg: Other key changes in the works include reducing so-called risk weights tied to banks’ tax-equity exposures and mortgage lending. Capital requirements will be lower on average than they currently are for mortgages of up to a 90% loan-to-value ratio, Barr said.

The revisions drew fire from the left (“a Wall Street giveaway,” said Sen. Elizabeth Warren), but some on the right said they didn’t go far enough (“I struggle to see how key aspects of this package make conceptual sense,” said Republican FDIC Director Jonathan McKernan). Banks will now assess how the proposed revisions impact their business, and there will be a 60-day comment period. The Promote will talk more about the potential CRE impact in upcoming editions – stay tuned. 📺️   

Royal Rumble in Murray Hill

Every era of exuberance in the market births its stars, and in the NYC rent-stabilized frenzy of the mid and late aughts, perhaps none shone as brightly as Isaac Kassirer. The cherubic founder of Emerald Equity rapidly racked up thousands of rent-stabilized units – his face was practically TRD wallpaper for a couple years – but then came the 2019 rent reforms, which vaporized his portfolio. He lost one major parcel after another, leaving lenders and investors scrambling to recoup some of their losses. Last month, he was sued by a former partner, Gold Wynn Asset Management, which alleged he failed to cough up his share of an investment on 685 First Avenue, a 408-unit Murray Hill luxury rental formerly owned by real estate scion Stefan Soloviev (side note: a totally electric character). The $387M purchase of the building was part of a ‘22 $1.75B megadeal by Josh Gotlib’s Black Spruce and Meyer Orbach to buy about 1,700 mostly market-rate units from Soloviev.

Now, Kassirer is punching back, suing Gotlib and Orbach (though not Gold Wynn) and alleging that he and his associates contributed significant funding to the deal, per PincusCo. He claims that he is entitled to a one-third share in the property, based on a verbal pledge. 🙊 A snippet from the complaint: “Nevertheless, Gotlib and Orbach refused to memorialize in a written document their agreement with Kassirer that he owns one-third of the interests in 685 Manager LLC…” 

Bonus: Worth reading this on Gotlib, a 30-something former broker who’s amassed more than 4K apartments in primo NYC

Quickies

• 📽️ How Howie Lutnick became MAGA’s main Wall St. man

• Lucky number 444: LA Developer allegedly committed hundreds of campaign finance violations

• “Forger & a liar:” Bankruptcy judge blasts TX investor, alerts DoJ

• List or bounce: Top IWG shareholder pushes flex-office giant to act

• ten31’s Chicago HH was so epic that one guy flew in from NYC just to attend it – and then flew right back

A Zell 9/11 Tale

I wanted to share a story of a fascinating and polarizing 9/11 story I heard from RE legal ace Jay Neveloff.

In 2001, Chicago developer J. Paul Beitler and real estate investment titan Sam Zell were stitching together a deal for a new skyscraper at 2 North Riverside, to be anchored by Mayer Brown and Deloitte. Zell was slated to meet with the prospective tenants on Sept. 11, in New York City.

The South Tower at the World Trade Center collapsed at 9:58 a.m. Zell kept the meeting. Every 45 minutes or so, they paused, recalled Neveloff, who was repping one of the tenants, but “there was never a moment where Sam said, ‘wait a second, the world’s ending.’ There was an acceptance by all of us that life would go on, and we’d have to deal with the horror. In a bizarre way, it was therapeutic.”

All flights were grounded, so Zell made an 800-mile limo trip back home to Chicago. The tower – and dozens of others like it – never came to fruition, as new skyscrapers became a no-go in the wake of the attacks. But both Neveloff and Beitler saw the incident as emblematic of Zell’s approach to the business, and to life: There was never a question of stopping. 🗽