Tragedy of the Special Servicer

The Tragedy of the Special Servicer

You can’t have all the fun and make most of the money without taking an outsized share of the heat. It’s special servicer season in CRE world, with the biggest players like Jeff Krasnoff’s Rialto Capital raking it in from fees and B-Piece plays (see here). They’re also getting sued by irate sponsors: in March, a Staten Island mall owner accused Rialto of “wanton dishonesty” in its handling of a loan extension. Now, a Chicago bigwig is alleging Rialto engaged in an intimidation campaign over its troubled $164M loan.

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Special Servicers (Cont.)

The setting, fittingly, is the Civic Opera House. 601W, which is getting rocked all over the place, alleges, per TRD, that when the building fell into trouble, it went to Rialto w/ its tail between its legs 🐕‍🦺 to try to work out a solution. It proposed using loan reserves and rental income to pay for operating expenses and leasing costs. Rialto, however, refused to budge, and instead went scorched-earth: it alleged that 601W obtained “unauthorized indebtedness,” which triggered a PG, and sued 601W-affiliated Michael Silberberg in New York, alleging he’s on the hook for $200M+. 601W says that was a classic bullying maneuver, and noted that Rialto has a stake as a bondholder on the CMBS debt tied to the property. Its moves, 601W alleges, are part of a “well-documented playbook” to “engineer” loan defaults and juice fees. 🧃🧃🧃

As of Nov., Rialto and Wells Fargo claim that 601W owes $56M+ in interest and fees, plus a $1.3M special servicing fee for Rialto 😍 . Some data wonk needs to tally up the special servicer bonanza so far in ‘24- The Promote will happily publish it.

(Bonus: Rialto’s financial contortions have in the past caught the attention of senior gorilla 🦍 Carl Icahn)

Heat on CoStar’s Matterport Acquisition

CoStar’s pending $1.6B acquisition of virtual walkthrough and 3D twinning 👬 software Matterport will enrich company insiders but do very little for common shareholders, a new lawsuit alleges. The suit, filed by a Matterport investor this week, says that Matterport’s board could get golden parachutes 🪂 if they’re terminated after the deal is done, and said that CoStar has been cagey about details of the acquisition in public filings, making it hard for Matterport investors to understand what they’re getting into.

To muddy the waters further, Matterport’s former CEO just won $79M in damages from the company, which had prevented him from selling shares after the company went public (via SPAC, of c) in ‘21.

Given its size and its dominance in RE data, CoStar’s moves have drawn heat from regulators. In 2020, the FTC successfully blocked CoStar’s planned acquisition of RentPath, and has pushed the courts to review dismissed antitrust claims brought by rival CREXi. 

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Quickies

• 🎥 WeWork’s new boss is the anti-Adam Neumann 

• FDIC flags banks’ CAMELS 🐫 rating - read our primer here on why it matters for CRE

• TPG is Jeff Gural’s money on office-resi FiDi project 

• Mack faces foreclosures on Kassirer East Harlem portfolio

• Yitzchak Tessler’s 172 Madison goes into Ch. 11.

• Albany becomes first NY city to opt into good-cause eviction 💀 

Rabsky Makes it Rain

“With money in your pocket, you are wise, you are handsome, and you sing well, too.” - Yiddish proverb

Quite a month it’s been for Simon Dushinsky. The co-founder and unphotographed face of the Rabsky Group, perhaps Brooklyn’s most active lone-wolf 🐺 developer, has landed nearly $800M in debt across 2 megaprojects. At its 600+ unit multifamily development in Gowanus, it nabbed a $286M construction loan from G4 Capital, per TRD, and also scored $485M from Madison Realty Capital to recap an 1,100-unit multi project in Downtown Brooklyn, per CO. (Henry Bodek, a fascinating and fast-talking guy prone to calling you and then immediately putting you on hold, brokered both deals.)

Rabsky’s been expanding its empire by picking up sites from many of its now-underwater peers. It bought a cool Crown Heights property, the Nassau Brewing building, out of bankruptcy auction in March, and the Gowanus project site was bought in ‘19 from Yoel Goldman, who’s been on quite the financial adventure these past few years.

We know very little about the founders of a firm that’s doing so much. Dushinsky (fun profile here) is said to be in his early 50s, a member of the Vizhnitz Hasidic 🎩 community, a devout guy with lots of kids and little interest in the limelight. Even less is known about his partner, Isaac Rabinowitz. And that’s just the way they like it.

Short Seller Comes for Axos

Hindenburg Research, a short seller recently in the limelight for its crusade against Indian tycoon Gautam Adani, is coming after a target closer to home: Axos Bank, which bought $1.2B in Signature Bank CRE loans for 63 cents on the dollar in December. Hindenburg alleges that Axos has juked the stats in order to conceal its exposure to bad CRE debt.

“We are meant to believe that Axos has selected only the best felons and troubled borrowers and properties to lend to, allowing it to waltz gracefully through the imploding commercial real estate market,” Hindenburg wrote. “We think otherwise.” (Side note: Why are all short sellers prone to purple prose?) Axos, for its part, says the allegations are rubbish.   

Unquotable Quotes

This edition of The Promote comes to you from one of the coolest spaces I’ve been in, a high-concept cabinet-maker’s atelier in Marseille.