Tides' Poison Pref Pill & RE's Alpha Dog Wants More

Real Estate’s Alpha Dog Wants More

To a certain kind of old billionaire, relevancy is a far more potent drug than riches. If you’re raking in wealth but not seen as a city-shaper, you might as well call it. Steve Ross lives this truth, and he’s exported it to his new adopted home: South Florida.

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The Related Companies founder and chairman (CEO Jeff Blau holds down the fort in New York) is bringing his signature mix of big deals and loud philanthropy to Palm Beach and West Palm Beach, raising funds to bring a Vanderbilt University outpost to the area; amassing nearly half West Palm Beach’s downtown office stock; and positioning himself as a kingmaker 👑 on Florida’s political scene: his recent shindig to fundraise for the university project featured Gov. Ron DeSantis and activist investor Nelson Peltz.

“I want to make West Palm a model city for the country,” Ross told Bloomberg. “This is more like city-building, and it’s complex and challenging. And I still love a challenge.” The southward migration of wealth will help: Palm Beach County had a $7B net gain in adjusted gross income from 2020 to 2021, per the Economic Innovation Group, leading the country. Ross has already lured some blue-chip Manhattan firms to the area, such as Steve Cohen’s ⚾️ Point72 and Goldman Sachs. And he’s talking up the pro-business political environment every chance he gets, praising DeSantis and telling the publication that the vibes are “excellent.”

It’s nearly impossible for a developer, even by far the wealthiest ($14B) and most successful specimen of the genre in Ross, to be New York City’s alpha citizen: the city has too much money and too deep a history of civic engagement from its billionaire class (great vintage read here on Michael Bloomberg). It’s a little easier in an up-and-comer such as South Florida, though Ross still has to contend with the likes of Ken Griffin and Jeff Bezos, as well as his former partner, Related Group’s Jorge Pérez.   

Rate Cuts: A Dream Deferred

“I'm sick of following my dreams. I'm just going to ask them where they're goin', and hook up with them later.” - Mitch Hedberg

Inflation has been stickier than expected this year, and it’s leading investors and Fed officials to rethink whether rate cuts are in the mix this year.

Here’s WSJ: Investors in interest-rate futures markets began the year anticipating six cuts, but now many anticipate just one—or none at all. Bond investors sold U.S. Treasurys on Thursday morning, pushing yields on the benchmark 10-year note above 4.7% for the first time since November, when Fed officials hadn’t yet signaled they were done raising interest rates.

The rates chatter often gets philosophical – “I always say, ‘one month is no months, but three months—that’s at least one real month,’” Chicago Fed prez Austan Goolsbee told WSJ – but real estate players had been hoping for some good news to help counter the floating-rate reaper 👿 they’re all dealing with. There’ve been some big pro-development policy shifts across the country in recent months, from Florida’s Live Local to New York’s freshly baked housing deal, but until there’s more clarity on the R word, developers might hang out on the sidelines.

“Scenarios do Exist:” Tides’ Poison Pref Pill

The market had been speculating about what would happen if Tides Equities did manage to land a preferred-equity injection: given the multifamily syndicator’s precarious situation, would any new deal basically evaporate the original common equity raised from retail LPs? That was the big fear, and Tides has now confirmed it.

If Tides (Sean Kia, Ryan Andrade) hits its $69M pref goal, 88% of the original equity on a 28-property apartment portfolio would be wiped out, per its marketing materials obtained by TRD. LPs would get back just $30M of the $270M+ they kicked in to fund Tides’ acquisition spree in ‘21 and 22.

“Scenarios do exist in which the math for existing equity does not work for preferred equity without significant improvement of terms from the senior lender,” Tides told the publication. But you don’t get to be a major syndicator without a preternatural sense of optimism, and Tides said that “successfully lining up a preferred equity injection alleviates the need for a capital call.” 🤲 It’s also looking to sell one of its Dallas properties, Tides on Esperanza, for a 30% markup to its ‘22 (i.e. the peak) purchase price.

Worth reiterating that Tides raised the bulk of the retail LP money through AMC Investments, an entity known as a feeder fund, a concept we broke down in The Promote last week. Feeder funds often get both an upfront placement fee – a % of equity raised – PLUS a piece of the promote from the GP to raise capital. So the incentives to find the best deals for LPs are often, shall we say, lukewarm. Now, think about how many Tides peers (GVA, Rise48, Nitya) are out there in a similar situation, w a similar feeder-fund conduit, and the kind of soul-searching their LPS must be doing.

(Bonus: To get a sense of the uneasy stalemate between syndicators and the debt funds that threw $$$ at them during their acquisition sprees and are now sad 😢 about it, read this.)

Quickies

• Gural’s partner on his fire-sale 222 Broadway buy ($148M compared to Deutsche’s $500M pp in ‘14) is TPG

• Michael Weinstein’s AIDS Healthcare Foundation pulls out of Skid Row homeless housing deal (Primer on Weinstein – a saber-rattling force on LA’s housing scene – here)

• 📽️ ten31’s breakdown of the latest on Nightingale/CrowdStreet $55M real estate crowdfunding scam

• Joseph Hoffman’s Bushburg, which made its bones 🦴 in trendy Brooklyn ‘hoods, debuts in Manhattan w a splash: buying Rudin’s 80 Pine for $160M, another potential office-resi play in FiDi.

• For a thoughtfully curated digest of REIT news, check out David Auerbach’s Daily REITBeat.  

Your CRE Video Destination - @ten31tv

If you want quick, sharp video breakdowns of some of the hottest trends & stories, look no further than ten31’s Instagram: We’ve already explored the latest drama with Nightingale Properties, David Werner’s unorthodox dealmaking, special servicers taking heat and Ralph Herzka’s take on the Meridian situation. If you’re into the voice of The Promote, it’s a great companion 📹️ 

Skyscraper Nightmares

“Just when I thought I was out...they pull me back in.” - Michael Corleone

Brookfield’s sale of its 1M sf 777 Tower in DTLA to the Koreans has fallen through, CO reports. Consus Asset Management was slated to pay a paltry $145M ($145psf) for the tower, about half the O/S debt on the property, but they’re now out. It’s not clear what pricing will look like next – another DTLA office traded for just $94 a foot this month.

Meanwhile, in New York, Isaac Hera’s Yellowstone (more on him soon) snapped up the note on 1740 Broadway - a Blackstone joint until it defaulted in ‘22 – for just under $200M. The property’s had quite a ride in the past 2Y, with CMBS musical 🎵 chairs and 4 different special servicers. (Blackstone, which bought the property a decade ago for $605M, is weirdly touchy about this stumble – its statements keep citing its overall track record, “which speaks for itself.”)

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