Billionaire and the Great Neck Strivers

The Billionaire and the Great Neck Strivers

“God willing, we are going to buy over $1 billion in this market,” is one of those instantly iconic lines, the perfect cocktail of Great Neck piety and Manhattan audacity. Josh Rahmani of Empire Capital Holdings made that declaration in ‘21, when he and his partner (and cousin) Ebi Khalili began gobbling up office buildings at a time few others wanted to go near them. Their appetite confounded many who wondered whether bottom feeding was possible when we hadn’t quite found the bottom yet. But in their corner was someone who had shown spectacular success with that very strategy: billionaire Igal Namdar. 

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Great Neck (cont.)

The tycoon has bankrolled much of Empire’s acquisition tear, partnering with the cousins on properties such as 830 Third, 529 Fifth, and now, 321 W. 44th St., which they just bought for <$50M ($227/foot), compared to the $153M ($695/foot) seller Related paid in ‘18. The purchase price is less than half the property’s O/S debt, per Bloomberg.

Namdar has been among the most active investors in NYC since the pandemic, with $500M+ in closed purchases since Nov. ‘19, according to an analysis for The Promote by PincusCo. Per the analysis, Namdar’s go-to lenders include Benefit Street Partners, Deutsche Bank and most prominently Reznik Paz Nevo Trusts, an Israeli bond trustee.

But it’s Namdar’s successful bets on decaying malls in small towns that led Bloomberg to dub him the “billionaire bottom feeder” 🐡 in ‘21. The playbook: buy struggling centers for peanuts, fill vacant spaces with down-market tenants (less Cartier, more Claire’s) and spend as little as possible on upkeep.

“The Ferraris of the world — that’s not the kind of car we’re looking for,” Namdar told the publication at the time. He now seems to be applying the same tactics on the world’s most visible stage.

WeWork Goes Old School on CEO Hire

“Get me the anti Adam Neumann” appears to have been Anant Yardi’s criterion for WeWork’s new CEO. The unassuming software billionaire, who took control of the decimated coworking giant after its bankruptcy reorg, has tapped Cushman lifer John Santora for the top job. It’s a strangely anachronistic choice: Santora had spent decades bouncing in and out of the C-suite at Cushman, and he’s a suit (see what I mean here), not someone you’d associate with a sexy brand like WeWork.

Santora joined Cushman in ‘77, and has been global COO (twice), head of North America & head of NY tri-state. He managed the (unsuccessful) integration of Massey Knakal and shepherded a bunch of big hires, including the Batman & Batman ™️ duo of Harmon & Spies. What’s unclear is if he was still on the active roster at Cushman, or whether he had transitioned to one of those honorary roles a lot of the big firms have.

The Cushman-WeWork relationship is a complicated one. The companies launched a “strategic partnership” in ‘21, and Cushman also invested $150M in WeWork’s IPO later that year, a bet that zeroed when WeWork filed for bankruptcy.

Yardi has said he wants to boost WeWork’s small biz appeal, launch an affiliate program w/ other co-working firms and integrate features such as real-time bookings. He told the FT he sees co-working as “an interesting combination of hospitality or hotelling, apartment leasing and commercial leasing.”

Sonder Bleeds Out

Some running thoughts on Sonder: Raised $600M from VCs. SPAC IPO’d at $1.9B valuation. Consistently lost impressive amounts of money. Delayed its Q4 earnings over accounting hiccups. Market cap today is $46M. Has or is set to exit 80 properties, per a new filing. Reworked rents at 25 others. Unclear if this DTLA landlord’s default is tied to any of that. Just received an infusion of $10M, a smidge more than what founder and CEO Francis Davidson paid for Pharrell’s LA mansion right as the SPAC deal was going down 🤲 .

I will leave you with this, from Davidson in late ‘21, on the company’s margins (emphases mine):

You'd see the operating costs at a property level. If you look at the real estate investment trust, for example, there is these publicly traded companies that have basically a bunch of hotel assets on their books, and they're going to generate free cash flow margins of call it 15% to 20%. We call it pre COVID-2019 levels of free cash flow margins. For Sonder, we can generate similar amounts if not better. I think what we showed is our steady state, what we think once we've fully built up the technology, we think we're going to be able to be at roughly 30% what we call property level profit margins, but without owning the underlying real estate.

So what's crazy (laughs) is that we can generate cash flows that are similar to that of those who own the real estate, but by still delivering a large quantity of economics to the owners. So by taking on an asset, the stream of cash flow as the present value of our operations in that asset is equivalent to the underlying value of the real estate, even though we don't own it.

Multifamily Debt Check: CMBS Silver Lining

Debt originations for multi are at their lowest levels since ‘15, per Q1 data just released by Newmark. Just $33B of debt (excl. construction loans) was originated in the quarter – compare that to the go-go days of Q1 ‘22, when the figure was at $82B. We’re down just 7% from Q1 ‘23, though, with Newmark suggesting that we may have found the bottom 🍑.

Where the money’s coming from? GSEs (-17% YoY) and banks (-39% YoY), the 2 largest sources of multi capital, have dialed back considerably, but CMBS has come roaring back: it’s up more than 5x from the same period last year. Newmark also ID’d $1.3T of O/S debt as “potentially troubled,” noting that most of that heartache is found in bank, CLO and debt fund loans – we’ve explored the precarious situation at Ready Capital here and LoanCore here.   

Stays of Execution

Last-minute amnesty at the Tower of Sauron: Larry Silverstein called off the foreclosure auction for the supertall at 9 DeKalb, opting instead to work things out with his borrower, JDS’ Michael Stern. The auction was scheduled for 6/10 at 10 a.m., but both parties released statements saying that they were willing to parley, per Crain’s.

Stern defaulted on the $240M mezz in March, leading Silverstein to kick off a UCC foreclosure. Silverstein also controlled the senior debt on the tower, having taken out Otera Capital in February, and was expected to make a credit bid. That could still happen, of course, if talks with Stern break down.

(Bonus: New to the character-rich dealmaking history of this property? Start here.)

Meanwhile, in other mega UCC foreclosure drama: Charles Cohen 🎥 bought himself another month in his $534M battle w/ Fortress. The judge ruled, per TRD, that Fortress’ foreclosure action was not “commercially reasonable,” which means that Fortress may need to provide more specifics (little case study here) about its plan and the portfolio to push it through. It has until July 15 to do so. The deets on this situation are quite spectacular – check them out here if you need some entertainment 🍿 

Quickies

• 🎥 Can Meridian still be Meridian w/o the 24-6 aggro culture?

• Brookfield takes another shot at selling giant Harlem rental

• Curious who else is mainlining The Promote? Check out our audience breakdown here (Hint: CRE junkies and “M” money) 🤑  

• Slammer time: Miami (of c) developer to be locked up for PPP fraud

• Durst lands $100M+ equity from Affinius for LIC rental

• Just one, son: Economists predict single rate cut this year 😢

• Founding member of once high-flying condo developer DDG sues to dissolve company 

• Kosher to halal: the changing retail makeup of Sheepshead Bay 🍗 

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