The Usual Suspects

The Usual Suspects

“You're so far past the line that you can't even see the line – the line is a dot to you!” - Joey Tribbiani

What makes commercial real estate so appealing to some is its near-total lack of guardrails. Wall Street offers you riches, sure, but the regulatory blanket means that a true caper is far rarer. CRE, on the other hand, is chock-full of tales of the heist, the deal that transforms a nobody into a somebody. People have been getting away with stuff that is so outrageous and so profitable, they can’t resist telling their friends about it, and pretty soon it’s a movement. Enforcement has historically been toothless, as the lines between merely questionable conduct and outright fraud are so damn blurry, they keep getting tested and redrawn.

In some ways, 2024 felt like AD 1 for that to change. 🤲 

Fraud (Cont.)

In Sept., Roco Real Estate’s Tyler Ross was sentenced to a year & a day in prison for orchestrating mortgage fraud across properties, including one that was part of a $570M sale to Joe Chetrit. (Ross is now appealing his sentence.) This month, Aron Puretz was sentenced to 5Y in prison for his own mortgage fraud (in a 🥜 shell: real closing, fugazi closing at an inflated price, enabling an inflated loan) in cahoots w/ Barry Drillman - I highly recommend checking out our rundown of the sentencing, as it gives you a visceral sense of how these things go down and also establishes a “comp” for other convicted fraudsters set to face the music: Drillman, Fredrick Schulman, Aron’s son Eli Puretz and Moshe Silber (who’s also facing foreclosure from Fannie on a Chicago portfolio.) And if you want to hear directly from one of the protagonists about the allure of get-rich-quick real estate, this conversation between Eli Puretz & Lightstone’s David Lichtenstein (starts at 12m) is essential listening.

That’s a snapshot of the guys who’ve already confessed to (at least some of) their sins. Their deeds catalyzed a broader crackdown in CRE finance, one that has swept up title insurers, appraisers, attorneys and of course debt brokerages.

This year was also the beginning of the reckoning for 2 high-fliers who are accused not of simple mortgage fraud, but of more operatic misdeeds. Former HFZ principal Nir Meir is alleged (he has pleaded not guilty) to have masterminded an $86M criminal fraud conspiracy (highlights: duping lenders by inflating construction costs, faking wire transfers, hiring ppl to fake Korean accents). Meanwhile, Nightingale Properties’ Elie Schwartz is accused of pilfering $50M+ in CRE’s biggest-ever crowdfunding scam; he is facing a federal hearing on Feb. 12, at which time he is expected by a trustee for his jilted investors to plead guilty to a single count of wire fraud.

Let’s see what the new year brings us. At the minimum, some people are going away, agencies are getting a lot tougher (the bar was low) about due diligence, and questions are being asked about platforms that were used in the schemes. But if the pressure continues to intensify, we may have a very different industry next Christmas. 🤶   

Into the Great Beyond

Vision & Beyond, a Cincinnati-based multifamily syndicator that raised much of its funds from IDF military personnel and reservists, is going out of business, according to reports from Israeli financial newspaper Calcalist. Investors in its deals were informed that management of the remaining assets – many have already been foreclosed upon – will be transferred over to them, and were asked not to try to contact Vision & Beyond’s principals Peter Gizunterman & Stas Grinberg, as that could “thwart the lender's consent to replace the management company or thwart our efforts to reduce the financial damages.” (Caveat: this is per a translation from Calcalist’s Hebrew article so may not be 100% accurate)

Gizunterman & Grinberg cited rising rates, inflation and lenders playing hardball as the reasons for the firm’s collapse. Now, overexuberant syndicators going under as soon as rates go “whoops” is not a novel storyline, but the source of funds here makes it so. Per Calcalist, “the controlling shareholders even established a 2141 club for discharged officers, which contributed to the branding of Vision & Beyond as a company for military and reserve personnel.” One key fundraising conduit was an entity called Rme, which helped Vision & Beyond market to military folk; its controlling shareholder, Aryeh Shechory (sp.) has reportedly filed a fraud complaint w/ Israeli authorities.

Investors are now scrambling to figure out what properties they’ve lost, and claim they’ve been left in the dark by Vision & Beyond’s principals. Don’t have much more to add beyond Calcalist’s thorough reporting, except that I dove deep into Gizunterman’s LinkedIn and it reads like a made-for-Hallmark syndicator movie.

• Amplifying articles about the beauties of passive income ✅

• Softball interviews on syndicator-revering pods ✅ 

• Philosophical posts about entrepreneurial vision ✅ 

Quickies

• Big banks are borrowing from private credit’s leveraged-lending playbook 

• Gotlib’s Black Spruce sells Chelsea multi portfolio for $95M to Westover 

• Modell’s founder makes play to buy Party City 🎈 

• Tishman Speyer sells Beverly Hills office to Iloulian/Zarabi for $670/foot 

• Slate pays $95M for Sam Chang’s Fidi hotel 🛏️ 

Unquotable Quotes