Quiet Kings Pt. III & Syndicator Conspiracy Theory

The Quiet Kings of Capital: Part III

“We’ve got the opportunity to make the world’s largest hard-money loan.”
“We stole a building in broad daylight.”
“We became the accidental owner.”

Three epic dialogues on 3 epic financings, epitomizing the high-stakes banditry that CRE can be. Whenever the market has seemed at its most decadent (Harry Macklowe’s EOP deal) or sorriest (Kent Swig losing the Sheffield) or most confusing (now), 1 lender keeps showing up with main character energy: Fortress 

They’re a shoo-in for The Promote’s list of most active alt lenders, a trilogy that we’ll complete today. (You can find Pt. I here and Pt. II here.)

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Quiet Kings Pt. III (cont.)

7) Fortress Investment Group

CEOs: Joshua Pack, Drew McKnight. RE guys: Timothy Sloan, Steve Stuart
HQ: Manhattan AND Dallas

When not busy cracking billionaire skulls and taking over troubled Manhattan supertalls, Fortress ($48B AUM) is making some of the most interesting long-game moves in CRE debt. It recently led a $228M investment into First Foundation, a Texas regional bank w/ big CA multifamily exposure. That move gave it 25% ownership in a bank that has $14B in assets. Co-CEO Pack had hinted at such plays back in Feb., when he said that the regional banking crisis was so acute that regulators would have to “utilize private capital to clean up the mess and recapitalize the system.”

In May, giant Abu Dhabi SWF Mubadala, in partnership w/ Fortress management, completed its $3B acquisition of Fortress from Masa Son’s SoftBank – the deal took a bit bc it had to go through CFIUS.

PS: Fortress is also a founding investor in the newly minted Texas Stock Exchange

8)Affinius Capital

Principal: Len O'Donnell. RE guys: Michael Lavipour, Jeffrey Fastov
HQ: San Antonio

Financial services giant USAA spun out its RE arm in ‘20, which then acquired Square Mile Capital (Craig Solomon & Jeff Citrin) in ‘21. The vehicle was rebranded as Affinius last year, and has about $35B in AUM.

Affinius was seemingly everywhere in ‘23, w/ nearly $5B in debt deals. This June, it teamed up w/ Kennedy Wilson on a $160M ground-up loan for a Gowanus rental (sponsor: a Tavros JV), as well as a $160M refi for Jay Group’s Downtown Brooklyn rental. It also hopped into Durst’s LIC supertall as an equity partner, a deal which valued the tower at $700M, and gave Ares $150M to acquire a 1.8M sf industrial portfolio.

“I think this is going to sound crazy, but people actually work together at Affinius,” Lavipour told CO for its most recent Power Finance rankings, continuing to demonstrate his strong Unquotable Quotes credentials.

9) Madison Realty Capital

Principals: Josh Zegen, Brian Shatz, Adam Tantleff
HQ: Manhattan

Perhaps the most active deal guys on this whole list, writing some of the biggest checks across asset classes & markets: $400M to a Related Group-led JV for a condo on frou-frou Fisher Island; $485M for Rabsky’s recap of its giant Downtown Brooklyn rental; $85M for Kushner’s ground-up project on the Jersey Shore; $585M to complete a Ritz Carlton resort in Arizona. They’re also big in the note-on-note financing game.

In January, Madison took control of a big chunk of LA megalandlord Neil Shekhter’s portfolio: Madison had given him $345M cross-collateralized across 7 properties in ‘19, then upsized to $1.2B x ≅30 properties over the next 3Y.

In ‘22, Madison sold a minority stake in itself to Iconiq Investment Management, Divesh Makan’s firm that manages money for Zuck and other Silicon Valley elites. This year, Madison (now $20B AUM) broke into the top 20 in PERE’s ranking of the biggest RE debt fundraisers, pulling in nearly $6B over a 5Y period.

PS: Madison also threw great boom-time holiday parties at the top of the Standard. I wrote a dispatch from one of them back in the day

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That’s it for the Quiet Kings series, which readers seemed to have really enjoyed. I’m sure we missed a bunch of big names, so write in w/ your suggestions.

Conspiracy Theory

This multi syndicator lawsuit really does have it all: Mitchell Voss’ WindMass is accusing its co-investor Fundamental Partners of conspiring to force the firm out of its LLC agreements, cutting it out of the promote 🥰 , and acting as “an organ donor to Fundamental’s unrelated projects.” 🫁 

The saga involves one of the syndication world’s most memed characters: Jay Gajavelli, of Applesway Investment Group. When Applesway’s lender Arbor Realty Trust foreclosed on its 3,200-unit Houston portfolio, Fundamental swooped in and bought the properties for $197M. Fundamental began throwing good money after bad on the portfolio, WindMass alleges – it “concocted a scheme” that pooled the Houston portfolio in w/ properties Fundamental jointly owned w/ WindMass, which meant higher insurance rates for WindMass, the firm alleges.

Fundamental then began dodging capital calls, WindMass states in the lawsuit, per TRD. And it began engaging in moves that WindMass describes as a “cash grab” for its promote, such as liquidating mutually held assets sans consent. Fundamental is rubbishing the allegations and says that WindMass has “repeatedly breached contractual obligations.”

Triumph and Disaster in Manhattan

Two deals that illustrate the extreme winner/loser dynamic in the Manhattan market - caveats upon caveats here, of course

1) 20 Exchange Pl: DTH Capital, a firm controlled by the family of late Belgian retail mogul Ronny Bruckner, just sold this 767-unit rental tower to the Dermot Cos., per Crain’s. The price was a whopping $370M, or $480K/unit. DTH had bought the 57-story property in ‘04 for $153M, and teamed up w/ office-resi alchemist Nathan Berman on the conversion.

2) 135 W 50th St: UBS just sold the leasehold on this nearly 1M sf office tower on CRE auction platform Ten-X (a CoStar joint) for $8.5M – compare that to the $333M ‘06 purchase price. The Times has some deets on how this sorry trade went down:

The auction for 135 West 50th opened earlier this week with a starting bid of $7.5 million. On Wednesday, with seconds left and only a single bid of $8.5 million, a gray box that read “reserve not met,” referring to the seller’s minimum price, suddenly turned green and changed to “reserve met” after that price was lowered. According to Ten-X, the reserve price is generally set at around three times the starting price. As the clock ticked down to zero, the auction was extended — three times — for a total of 10 minutes and 30 seconds. The auction finally ended with a sale price that was about 2.5 percent of what the sellers had paid for it.

To me, this looks to be separate from the deal for the ground under the building, which UBS had bought for $279M in ‘12, and sold to Safehold for $285M in ‘19. So the leasehold loss seems as dramatic as advertised- lmk if I’m reading it wrong.   

Quickies

• 📽️ Move over, Hasidim: How KKR became 1 of the biggest landlords in prime Brooklyn

• Ares raises record $34B for private credit fund

• Another Related/Toledano deal: JV planning luxe condo project in West Palm Beach

• LBA pays $300 psf for TIAA’s SF office note (original basis $500 psf)

• TF Cornerstone buys Greenpoint waterfront site for $175M 

• Oh zap⚡️: Texas get’s seller’s remorse over data center boom, citing crushing demands on power grid

• No “success fee” for JLL if this goes through: LA County has tentative deal to buy distressed Gas Company Tower for $215M (More context on the sorry DTLA market here)

• Developer calls out city of Milwaukee for unprofessional and inconsistent RFP process on $700M redevelopment

Unquotable Quotes - The Allocator’s Dilemma

Save the date: ten31 - in partnership w/ Iman Jalali’s Bear Peak Capital – is doing a Chicago Happy Hour on Tues., Sept. 10 at Joy District. RSVP link to follow but please lock that in your calendar if you’re in the area - should be a hoot! 🌬️