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Your Commercial Real Estate Insider guide. From profiles of the biggest dealmakers to skyline-shaping transactions, we bring you the deals, breakdowns and war stories that move the market — for insiders, by insiders. From bad-boy guarantees to CMBS tranche warfare to syndicator sins, we cover it all.
Each week, The Promote Podcast explores three of the most interesting and consequential stories in CRE, taking you well beyond the headlines and into the heart of the action. Hosted by the award-winning “Bard of CRE,” Hiten Samtani, founder of ten31 media and author of The Promote newsletter, along with no-BS institutional insider Will Krasne. Also check out our 3x/week newsletter for industry insiders at https://www.thepromote.com/
Hiten Samtani (00:09)
I was thinking recently that being in shipping is the most romantic source of wealth a CRE investor could have. Something about having major money on the high seas and then deploying it in luxury property.
Will Krasne (00:19)
I mean, that's how you get Jackie O' But I disagree. To me, it's aluminum smelting. And bonus points if you do it right in the wreckage of the Soviet Union.
Hiten Samtani (00:30)
I guess after you've cracked some oligarch skulls, delinquent real estate borrowers are sheep in comparison.
Welcome back to the promote podcast, your insider guide to the money and many of the CRE markets. I'm Hiten Samtani
Will Krasne (00:50)
and I'm Will Krasne
Hiten Samtani (00:55)
A shout out to our sponsors, Bravo Capital, a leading HUD and Bridge Lender
Will Krasne (00:59)
and Loan Boss, the best in class CRE debt management software.
Hiten Samtani (01:03)
This week we dive into the life and times of two quintessential men with deep pockets. Billionaire British bros David and Simon Reuben have become some of the most aggressive buyers of trophy hotel and retail assets across the country, many of them in various states of undress and distress.
Will Krasne (01:18)
and maybe friends with Ursula Andress. Looking for shells? No.
Hiten Samtani (01:20)
Hahaha
I'm just looking. We then look at Apollo's new triple net partnership with Realty Income. It's an alliance that says much about how both AUM gobblers and vanilla reits are saying they've got what the other needs. And finally, Bill Ackman's albatross, and yes, we need to be more specific about which one, we're talking about JCPenney, is now the scene of a bruising battle between the pass-through trust and a jilted would-be buyer.
Will Krasne (01:47)
Tasty docket, I gotta say. The billionaire British brother scene is pretty electric with the Reubens and the Barclays. Barclays is the subject of a great book. You may never see us again. Highly recommend it. But the Reubens, I think, might have them be.
Hiten Samtani (02:01)
Let's put in the show notes. We really got to get this book list or book club thing going because we've got a lot of requests and we've dropped the names of so many good readers.
Will Krasne (02:10)
Yeah, that's not us. We apologize. We'll get to that. But first, let's get started with a punch list, our signature rundown of the newsies news and CRE.
Hiten Samtani (02:21)
We should probably start with the loss of an industry legend, David Simon of Simon Property Group. died of cancer at just 64.
Will Krasne (02:28)
Just a sad day, one of the absolute OGs and legends of the modern read industry. He was the son of Melvin Simon, who Mel and his brother Herb Simon founded what is now Simon Property Group. I think the largest reader, what a large
Hiten Samtani (02:45)
They
are the largest retail owner in the world. They control over 200 million square feet. Worked for Perella the M &A legend, then went and saved this family business, set them up for an IPO, and then went on this incredible M &A tear, which created the modern Simon property.
Will Krasne (02:49)
And just one of the most epic stories is the
and really had tremendous leadership throughout COVID. They bought some of their tenants, kept them alive.
Hiten Samtani (03:08)
Forever 21, Brooks Brothers, all of
Will Krasne (03:10)
Yeah. Redeveloped a bunch of areas into residential and mixed use, did a phenomenal job. So absolute legend. There's a great anecdote in his obit where he was at Indiana University, his alma mater, and he donated a bunch of money to it. And he was on campus 10 or 15 years ago and they saw a top 50 graduates or most powerful graduates or something in the history of Indiana University and he wasn't on it. And he's like, I looked at 40 to 50. He's like, I could have been there. Come on.
Hiten Samtani (03:36)
Keep shopping up there David.
Next one, Fannie and Freddie stocks are in freefall.
Will Krasne (03:44)
again.
Hiten Samtani (03:47)
This time it seems to be over fears that this whole so-called privatization, the ending of conservatorship, is no longer imminent.
Will Krasne (03:54)
The housing policy has kind of gotten put on the back burner a little bit given that we're at war.
Hiten Samtani (03:58)
That hasn't stopped Bill Pulte from putting out more more unhinged announcements.
Will Krasne (04:02)
I wonder if Stu Miller looks over at him and is like, I'm such a better billy eater housing scion.
Hiten Samtani (04:07)
I think he looks down at him not always.
Will Krasne (04:09)
Great point. But yes, the administration has been focused on trying to make housing more affordable. And some of the plans included in this sort of privatization side of the Gestalt are actually good. Producing friction for community banks to make more home mortgages, make residency mortgages easier to finance. But the reason that the US multifamily market is the envy of the world, the most liquid property market, is because Fannie and Freddie have a guarantee from the federal government.
and they provide really attractive fixed and floating rate financing at incredible terms. That's what allows people to do construction loans is because you can take it out to Freddy or Fanny.
Hiten Samtani (04:47)
That's who you have in mind when you're doing all the stuff.
Will Krasne (04:50)
There's literally like bridge to Fanny, bridge to Freddie. I'm doing it right now. And if that guarantee goes away or somehow becomes implicit, what does that eventually mean? Because then if you think about this too hard, it's like one of those things where you look at a dollar bill and you're like, what does this mean? This is all made up. I'm just going to start carrying around guns and carry actual gold. And that's the economy we're going to live in. We're going to hunt and gather. So you don't want to go down that route.
Hiten Samtani (05:15)
What was their plan, the synthetic backstop they had? What did that look like?
Will Krasne (05:19)
Willie Walker talked about this somewhere, Willie don't at me. It was like the implicit guarantees. Like it's just as good. I'm like, is it? I don't know. And the other thing too is that Fannie and Freddie, they were put into conservatorship and had to get bailed out by the taxpayers. It's been an incredible investment for the taxpayers. Good job taxpayers.
They've distributed tons of profits, they stimulated liquidity in the mortgage and home markets. What more could you ask for?
Hiten Samtani (05:45)
This talk went through the roof, I want to say eight or 10 months ago when this talk came up of privatization again. I know Bill Ackman made a killing. The momentum has died down. Is that why we're seeing this?
Will Krasne (05:55)
Right now with multifamily or housing at all, we're so whipsawed by rates moving back and forth by being impacted by everything else that's going on in the world that I think Freddie and Fanny are no different.
Hiten Samtani (06:05)
So, Fannie and Freddie raised their purchase caps, I think, to $88 billion each for this coming year.
Will Krasne (06:10)
Right.
In the anticipation that the slower transaction market of the last few years would be a thing of the past, given the economy taking off, cuts, and none of those things are happening. The world has shifted quite a bit. You look at the 10 year and the five year since the Fed meeting last week, and we were anticipating earlier in the year, what, three cuts or two more cuts in addition to what we've already gotten. And now people are saying that we might hike. Fannie and Freddie rely on volume. And we're at a point where you can basically just look at the
10 year and the five year and be like, here's where our volume's gonna be.
Hiten Samtani (06:42)
Next one. think we got to ask this question at this point. It's been long enough. Is Brookfield bad at office investing? Yeah. We've talked a lot about their downtown LA portfolio, which they've kind of poo pooed is not really part of their core business, but it was part of their core business. Now they've just deeded and lewd. What's the verb? They've just deeded lewd another office tower in San Francisco, a market that has seen quite an upswing in recent months.
Will Krasne (07:02)
Indeed and lewd.
This one kind of hurts because some of their big rivals, Blackstone, Divco West, they have had enormous wins in San Francisco and obviously Converseant just closed their massive hotel deal and Brookfield's over here just like handing buildings back.
Hiten Samtani (07:28)
A partnership has come in here. I hadn't really heard of these guys. One of them is from your neck of the woods, Meridian Group. They bought the debt and they're basically taking this property over.
Will Krasne (07:37)
There's a whole sort of cottage industry of these kind of folks. They've been around since the early nineties, buying stuff. Pretty eminent DC guys. This is a big swing for them.
Hiten Samtani (07:46)
there's bad real estate and then there's bad cap stacks. And I would imagine that this is more of the.
Will Krasne (07:50)
In a vacuum, this is like a nice asset. It's part of a huge mixed use project. It got a huge construction loan and it's just been vacant. They delivered into the worst timing you could have, which was mid to late 22, I think. So they are somewhat a victim of that. They got peak supply chain. They got peak rate hikes. got peak San Francisco bad juju. But what's crazy to me though is that they've only leased 20
thousand square feet of this thing and it's the thumbtack of all places which is just kind of great because there's a lot of stuff going wrong like the pipes haven't been turned on the water and the lights all need to be checked and thumbtacks there so they can always fix everything in the tower so their RNM should be really really light.
Hiten Samtani (08:34)
All right, next one. This comes back to the Iran conflict. One of the things to consider as this conflict drags on is the role of the GCC countries, which are hostile to Iran and have been taking some hits, literally. The Gulf Cooperative Council. Is it cooperation or cooperative? It's Saudi, the UAE, Qatar, Kuwait, etc. It's a bunch of these. Gulf Arab countries.
Will Krasne (08:47)
GCC stand for?
Ugh, stay cutter again, I love it.
Hiten Samtani (09:00)
They are very, very big allocators, major players in the global investment landscape through a variety of bets, venture capital, crypto, private credit, real estate. And there was an attack on a Qatari ⁓ LNG facility last week. The energy minister said that this is going to wipe out 17 % of our export capacity. That's staggering. When you have something like that, you do have to think about if this goes on for a while, what does this mean for the allocator side of the universe?
all the fund managers from Blackstone to Brookfield to whoever are courting the Middle Eastern investors.
Will Krasne (09:35)
And the whole alternative asset management industry, we talked about AOM Gobbling. It's basically a shark. It's like there's nothing on the mind of the shark but eat. They have to keep moving forward and so they need more money, but they've run out of pensions, endowments, all of those things, and they need to go elsewhere to get money. Because again, the carry isn't really one, point, but two, valued by Wall Street. And so you need consistent earnings and the way to get that is increase your
fee paying assets under management and they have tapped out and so they got to go to 401ks, which is why it's been such a big push. They're going to retail, which is why John Gray is doing running videos. And by the way, come see us in Nashville this week.
Hiten Samtani (10:17)
Talking about the running videos and so much more, media strategy for GPs? Yes.
Will Krasne (10:21)
So they're going to those places, but the biggest fish are these sovereigns. There are billions of dollars that can be used basically as like a political cudgel and you can invest behind things you want. You can learn about certain things. We've talked about Ray Dalio setting up a family office.
Hiten Samtani (10:37)
He's sitting in Abu Dhabi, he's got the kundurah on, he's sitting with Sheikh Tahnoon, who Bloomberg called the world's $1.5 trillion man, which is a great nickname, I wish I have some day.
Will Krasne (10:45)
But if that goes away, a lot of these big plans in the US, what happens if the data center built out? All of that money underpins so much of our economy. Like, what was the tweet the other day? The global economy is predicated on San Francisco lying to New York about how good AI is, and then it's New York lying to the Middle East about how safe private credit is.
Hiten Samtani (11:09)
That's it for the punch list. When we come back, we're gonna talk the Brothers Reuben.
I'm here with Aaron Krawitz of Bravo Capital. Aaron, $2 billion in deals, 100 % HUD approval rate, five years since launching. How do you keep that streak going?
Aaron Krawitz (11:29)
comes down to our team. Our underwriters know what HUD wants. We're a pure play HUD lander, meaning everything we do is HUD and bridge to HUD. No taking shots and just hoping. When we go, we really go.
Hiten Samtani (11:41)
You closed a Healthcare How To Express Lane deal in four days? Four days?
Aaron Krawitz (11:45)
forward from
our submission to HUD's approval and it goes back to knowing the ins and outs of the program so that there is no guesswork.
Hiten Samtani (11:52)
Sniff's assisted living, feels like such an arcane world full of very complicated regulations and such a specific cast of characters that you really need to know cold to make this work.
Aaron Krawitz (12:02)
Exactly.
We're steeped in state-by-state regulations and distinctions, but we're not just about HUD. We also have a very strong balance sheet bridge affiliate, Bravo Property Trust, and we just financed over $170 million out in Miami and $125 million in Dumbo, Brooklyn. If we have conviction, we move fast.
Hiten Samtani (12:23)
Thanks Aaron and where can people find you?
Aaron Krawitz (12:25)
We're
at bravocapital.com.
Hiten Samtani (12:35)
doing the brothers whatever it sounds so much better than the other way around right there's something very fairy tale about
Will Krasne (12:40)
Did you ever read the Brothers Karamazov?
Hiten Samtani (12:43)
I did.
Will Krasne (12:44)
Yeah.
Hiten Samtani (12:46)
long. Okay, we're talking about the Brothers Reuben. Incredible tale here. Well, they just bought a luxury shopping center in Palm Beach, which is the excuse to talk about them here. But David and Simon Reuben, man, they're real characters, the kind of people that we live for here at the Promote. We talk about men with deep pockets.
Will Krasne (13:04)
Yeah, we do. We're the deepest.
Hiten Samtani (13:06)
So they're born in Bombay, which is now Mumbai, to a Baghdad-y Jewish family. The father had moved there to work in the booming textile industry during the days of the British Raj.
Will Krasne (13:15)
These guys just make money from a stone. They've done it all and they've done it everywhere. David, he started working in scrap metals. He worked at a couple of banks in scrap metal. Metal trading is some of the Wild West. Go read the World War sale. Guys like Mark Rich, who comes up later, Glencore, Vito, all of these commodity traders, just absolute. You got to have balls the size of coconuts.
Hiten Samtani (13:38)
You gotta have balls of aluminum. It's a combination of just bare-knuckle business, the kind of things that you would see in many other professions with the highest echelons. But also all of these things are very, very politically connected to pretty psychotic entities sometimes.
Will Krasne (13:52)
⁓ yeah.
They're the most dangerous places in the world to deal with the craziest people in the world to get this stuff done.
Hiten Samtani (13:59)
But it
reminds me of when we did the Gary Barnett episode about diamond trading. This is way crazier. Yitzchak Tesla, Yitzchak Tesla saying, you know, life is worth less than the ash in this ashtray. It's kind of some similar dynamics here.
Will Krasne (14:12)
except turned up to 11. 100%. If you're going to some of the places that these guys have been. And so you had David doing that. And then you had Simon, the operations guy. So he turned around to carpet manufacturer, sold it for profit, got into real estate, was doing property deals in London in the 70s. And these guys just had great timing. They saw opportunity, which I thought was the most interesting thing. A lot of people said, OK, yeah, this like cash for shares thing in Russia could be something. And people made absolute fortunes being politically connected, buying stuff for no money.
And these guys, they're not Russian.
Hiten Samtani (14:43)
they're not Russian and they're Jewish and those things don't necessarily work very well in
Will Krasne (14:47)
Russia. No, they do not. But they came in and invested something like a billion dollars capital in like four years. And we talked about Mark Rich. Apparently, Mark Rich might have been involved in staking them, which is a very Mark Rich thing to do.
Hiten Samtani (15:01)
Mark Rich, obviously, of Glencore fame. And then Clinton fame, correct? Same one.
Will Krasne (15:07)
And his wife Denise is still hanging out at Life with Key. Denise, I'll see you later this year.
Hiten Samtani (15:12)
What they did was they brought in raw aluminum, delivered them to Russia and took out finished aluminum in exchange, which they then sold on the open market, presumably at a massive profit.
Will Krasne (15:22)
Good generals think about strategy, great generals think about logistics. Like you need to have strategy and logistics and spades here to do this.
Hiten Samtani (15:29)
They eventually exited Russia by selling their interests to one of the all-time characters, Roman Abramovich, the owner of Chelsea FC.
Will Krasne (15:37)
Do you really own Chelsea or do you just keep it for the next generation? Sold it to him for $300 million and they knew everybody. They were involved with, like, Derek Poska, all of these major characters who the whole London grad era, that was these guys. They were in the midst and they, again, they were not Russian.
Hiten Samtani (15:57)
Just
to add to the oligarchic intrigue here, they also bought themselves a Premier League team.
They own Newcastle FC, who by the way, we just thrashed in the Champions League. Peace, Khabar said.
Will Krasne (16:11)
They take their money out of Russia. Coming out of this, think the most important thing is they are liquid. They're liquid as anybody out there. And their money's not tied up in a company, they're not tied up in property, like it is ready to go. They go.
Hiten Samtani (16:25)
deploy. Yep.
They started doing property, they build up a really significant upscale portfolio in London, in the UK. They were also early players in the data center frenzy and they cashed out big time in 2016. They sold a stake in a company called Global Switch to the Chinese for two and a half billion dollars.
Will Krasne (16:48)
shutter to think what that's worth now, but never one broke taking a profit. They made their first big move into the U.S., the most notable move, the mid 2010s peak foreign capital coming into the U.S. But they did this the smart way, actually. They bought the debt for a couple of really tasty hotels in New York.
Hiten Samtani (17:07)
world famous Plaza Hotel, the Dream Downtown and Grosvenor House. They paid 800 million for the combined debt. So they controlled the cap stack on these three notable properties in Manhattan. And they just kind of kept going.
Will Krasne (17:21)
The consistent theme is tippy tippy top. They're buying for a big discount and they are bailing somebody out or not bailing somebody out connotates that they're paying like a high price. They are taking people off of the petard. That's the other thing is that during covid when hospitality and retail were the assets I think hit some of the hardest. That's where these guys pounced. Yes. As you said up top if you're dealing with aluminum smelting in Murmansk like dealing with Todd Glaser.
No shots at Todd. The key again is it's high end stuff, complicated, and somebody needs somebody with a lot of liquidity. And again, having to do Lundox here, I would not imagine this is like so for 400 money.
Hiten Samtani (18:03)
Hahaha
let's put some numbers on the scale here. think between 2020 and 2022, they deployed at least $4 billion into US real estate through a combination of debt and equity.
Will Krasne (18:15)
And they do it with very little diligence, which is really attractive for a lot of these assets. There's no committees. There's no, we're going to take a while to go syndicate this out. They bought a bunch of the retail portfolio from tornado at a big haircut, but I think they closed in 30.
Hiten Samtani (18:29)
discount.
They also bought something from SL Green, 609 Fifth, I believe they bought the retail there. The Sari, Ben Ashkenazi had been booted out. The seller is insistent on a simultaneous contract and closing, which means you sign and you take title right away.
Will Krasne (18:44)
That's what you do in &A transaction, not like real estate necessarily. Or in real estate, it's like if you're buying a four unit in Gowanus.
Hiten Samtani (18:53)
And then they kept going. mean, some of the more recent high profile deals, they bought the W South beach off of David Edelstein and A.B. Rosen.
Will Krasne (19:01)
They have the loan on the JW Marriott Turnberry.
Hiten Samtani (19:04)
They have a condo inventory loan with JP Morgan on your boy Gary Barnett's Central Park Supertall.
Will Krasne (19:09)
They
might be waiting a while to get paid back there. We'll see. They're not also afraid of hair. They've got Century Plaza in LA, which was just this absolute massive, multi-billion dollar project.
Hiten Samtani (19:23)
Ronnie Reagan used to hang out there back in the day. think it was cold.
Will Krasne (19:25)
the
Western White House.
Hiten Samtani (19:31)
my god, he had been trying to make this. what the plan was to take this hotel, revamp it as a hotel plus two condo towers, tippy top condos. LA is a tough market for condominium living. This was like a $1.8 billion project. He took some pretty high octane financing from the Reubens back and forth for a long time. They finally took control of this property and booted him out. The Reuben brothers are now in their eighties. One of the brothers, his middle son, David, is now running point on this project.
Will Krasne (19:58)
So for two brothers who really shunned publicity and in fact sued fortune for libel.
Hiten Samtani (20:05)
They did one on-the-record interview and then promptly sued Fortune for it.
Will Krasne (20:09)
Somehow the real deal got David Reuben on the record.
Hiten Samtani (20:12)
Double-fisting a Diet Coke and a vape? Is this a f-
Will Krasne (20:15)
Fascinating interview and it sheds a lot of light on what it's like being the son of great men Capital G capital N. It's a curse, but yeah, think it's especially so when it's not like the guys made their money in the candy factory
Hiten Samtani (20:30)
Talking about being the son of a buccaneer, the son of a man of action.
Will Krasne (20:35)
David Reuben over here is dealing with this thing that he probably isn't that equipped to handle. These are incredibly complicated. This is like a related job. You need Steve Ross. I don't know if you need David Reuben doing this, even though he's moved over there. It's just interesting that they chose this time to come out in public and maybe part of it is saying, hey, our condos are 36 % sold. Maybe we need to do a little bit of marketing.
Hiten Samtani (20:58)
The good thing here is that they don't have to worry about the lenders.
Will Krasne (21:01)
Yeah, when you own it all equity, it makes life so much easier.
Hiten Samtani (21:06)
Todd Glazier, best known as Palm Beach's ultra ultra ultra luxury spec home developers, he was involved in a project called 1000 Museum and the Reubens really beat up the developers over there and I chatted with Todd at some point. The Reubens came up and he said, they knew we were taking an inventory loan. They just want to be assholes. But the best thing in the world is everybody now knows the Reuben brothers that are coming to town to lend money are hard ass sons of bitches.
So, Will, you violate any dead covenants recently?
Will Krasne (21:42)
So funny you should ask. I have been in technical default recently. I mean, who among us? Right. But not since Q4. Ooh. And that's not because I paid off the loan. It's because that's when I started using Loan Boss.
Hiten Samtani (21:55)
I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that.
Will Krasne (22:01)
Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cashflow forecasting, impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve and then it's always vertical and you gotta alt HVT to have it go horizontal. Make sure the index match works, like ridiculous.
Hiten Samtani (22:24)
It just got it sorted here for-
Will Krasne (22:26)
Much better. So thank you, lone boss.
Hiten Samtani (22:29)
Listeners, check them out at loneboss.com. That's loneboss.com. And tell them the promo sent you.
Will Krasne (22:48)
You've got the nerdy girl and you've got the hot guy over here being like, I can make her the prom queen. And that in this case is Apollo going to Realty Income and saying, let's team up.
Hiten Samtani (23:01)
Wait, which one hit miss example, which one's the hot guy?
Will Krasne (23:04)
Freddie Prinze Jr. and she's all that is Apollo. And then what's at Rachel Lee Cook is realty income. And then she takes off her glasses and you're like, my God, look at that cash flow. What are you doing? I'm getting ready to play some Sega. No, you're not.
Hiten Samtani (23:19)
What is happening here? So Apollo is investing about a billion dollars in 500 of Realty Income's single tenant properties, which are triple net least, which means the tenant is responsible for basically everything. Mailbox money here, right? Or the closest thing to it.
Will Krasne (23:35)
Pretty much the triple nets are taxes, insurance, and maintenance. And that's pretty much everything associated with property outside of roof structure, parking lot sometimes. Those are the types of properties that Realty Income owns. And what's attractive about them is that they have very high margins because there's no cost. You're not making a home run. These are more like stay rich than get rich. But these companies, there's Realty Income, there's NNN, Triple Net Property.
Hiten Samtani (24:02)
The one that just sold was fundamental.
Will Krasne (24:04)
Yeah, fundamental income was kind of that. These things have actually, like, if you look at stock price over time with dividends reinvested, the returns are quite good.
Hiten Samtani (24:12)
And think that qualifier is really important, quite good. Minstrels wouldn't sing about these, but they make money.
Will Krasne (24:18)
think like low to mid teens over like 30 years since IPO. Not nothing. So why is Apollo doing this? And first of like why is Realty Income doing this?
Hiten Samtani (24:25)
The Reets in general are facing the Rodney Dangerfield problem, right?
Will Krasne (24:30)
Right, because what the public markets are sort of realizing, we've talked about this all the time, that all these things are getting bought because they're trading below NAV. And if you're trading below NAV, what does Don Draper say? You don't like what's being said? Change the conversation. If you don't like the fact that you own real estate, which is a very capital intensive, low margin business, stop owning real estate.
Hiten Samtani (24:48)
Stop owning real estate and get into a little bit of a better story, which in this case is fee generating vehicles.
Will Krasne (24:54)
Right. They're still going to asset manage all the Wendy's. But what it means is that they're generating fee related income and it allows them to diversify their earnings. And that multiple applied to that earning stream is much higher than what you're going to apply to Arby's with seven years of Walt left and Topeka.
Hiten Samtani (25:11)
They're taking external capital from Apollo and then this new JV will own these properties? Is that right?
Will Krasne (25:16)
Right.
I'm not exactly sure whether it's like a recapitalization technically or like a new purchase. But yeah, essentially that's the case where they are not using their entire balance sheet to go buy these things. They're freeing up their own balance sheet and they're creating a fee stream, which wasn't there before. And what's also interesting too, is that there's a right to buy back the stake from Apollo for a 6.75 IRR. Kind of, I guess. It's fascinating from Realty Income's perspective.
Hiten Samtani (25:39)
Like a preff?
Will Krasne (25:45)
But it's really fascinating from Apollo's perspective because last episode we even talked about how they're like the t-shirt cannon shooting people into the stands of debt. There's just not enough debt. They got to go find other things to do. And so what they do is they find the most debt-like product in real estate equity, which is triple net.
Hiten Samtani (26:02)
consistent boring returns that you can basically project out for 20 years, let's say.
Will Krasne (26:07)
Yeah, because that's what they need. They don't want a lot of like zero coupon, heavy value add, no cash flow for four years, then the residual value of 17 IRR. They want that every quarter, every month.
Hiten Samtani (26:19)
I'm going to read you a quote from Realty Income CEO Sumit Roy, which I think speaks to this. ⁓
Will Krasne (26:32)
There you go. It says it all. And this is not the first exploration into the space that realty income has done. And they have a JV with GIC where Singapore Sovereign Wealth Fund, which backs everything, but only 49%. They're focused on built to suit logistics properties with long-term net leases. Same type of profile. That dependable cashflow.
Hiten Samtani (26:47)
I call them the everything LP. Only 49%.
Will Krasne (26:57)
in financialized world is incredibly valuable because all of this capital underpinning the real estate space and a lot of the global financial system is a newbie based where you have certain obligations that you have to hit every year. And so if you can deliver that cashflow profile, it's really valuable.
Hiten Samtani (27:13)
I'm going to read this quote from Apollo's co-president Scott Kleinman. The game, quote, really is built around, can you originate enough attractive assets to meet your needs? That's why we've been so focused, some might say maniacally focused, on really making sure we're building the right type of origination in the right volumes.
Will Krasne (27:31)
That's exactly what this is. it's origination not just for decks. That's, think, where people think about it. It's origination of equity investments, And so you have to find stuff that meets the profile of the capital that they have. Investing in something else can create higher returns. That does not matter. We are making widgets in the commercial real estate space. And the widget that is really expensive right now is the very consistent cash flow deal. so.
People are looking to find those widgets wherever they can and Realty Income was just sitting on a widget factory.
Hiten Samtani (28:13)
Silver Foxes in hen houses. How do we get into this?
Will Krasne (28:19)
Bill Ackman back in the day before he was born. He was really big on these SPVs into retail names. did it with Target and he did it with JCPenney where he hired Ron Johnson of Apple Store fame. Of course didn't work. Complete debacle.
Hiten Samtani (28:22)
for the Twitter screeds.
Apple Store luxury premium design forward product, JCPenney, value shopper, best price. That's kind of what matters more than the X factor of design and whatnot.
Will Krasne (28:49)
Pretty much like that's beyond my pay grade. But yeah, sounds good. I think that's probably right. But everyone really looked at real estate value for all these retail names. And that includes Saks Fifth Avenue, Hudson's Bay Company, Target, even with stuff like Kohl's, I think today, there's like the, we can unlock the value of the real estate. And there was this continued thesis that that was going to be the case, that this was going to be so valuable. So JCPenney goes into bankruptcy and they...
spin up this new trust, the copper pass through.
Hiten Samtani (29:21)
It's called a pass-through trust set up to liquidate the real estate over time. Exists just for that purpose.
Will Krasne (29:28)
Yeah, to pay off the lender. So they're not reinvesting in the stores or redeveloping anything. so they have it's 135,000 square feet on average across 35 states for all these stores and Stents will be as well as value. And so they're leased to the sort of Remain Co of JCPenney, which is paying some sort of rent. Okay. And they go to package this for sale and they sell it for a billion dollars for 119 stores. Or do they?
Hiten Samtani (29:58)
They had a deal to sell this to a company called Onyx Partners, huh? I never heard of these guys.
Will Krasne (30:03)
I had neither their website phenomenal. Their headline on the website is investment collaboration for generational solutions.
Hiten Samtani (30:11)
Just one of those spat out combination.
Will Krasne (30:14)
No idea what that even means. They agree to buy it for just under a billion dollars and they have this net operating lease. you assume that these are financeable because there is some cash flow, but again the credit is not great. And these things probably trade pretty wide, but then the deal doesn't close.
Hiten Samtani (30:32)
This sounds so basic to say, but there's two components to any real estate purchase, right? You sign the documents to buy it and then you actually close on it. But the second part did not happen.
Will Krasne (30:40)
And there's always a question about why. Does the seller want to sell it? Does the buyer want to buy? Does the buyer have the money? All of these are good questions. And the seller in this case is saying the buyer defaulted. The buyer is saying the seller wouldn't let us close.
Hiten Samtani (30:54)
The buyer's allegations are especially interesting. They're basically saying that JCPenney or the pass through copper got cold feet or didn't love the buyer and actually went and secret shopped the deal around to other suitors even when they had a deal with them. They mentioned this is one of my favorite terms in real estate. So I'm so happy it came up again. It says they delivered them a dirty estoppel.
Will Krasne (31:15)
What?
Hiten Samtani (31:16)
Let's talk about what a dirty estoppel is.
Will Krasne (31:20)
Two parks, ruin art, one park, gin, a couple of bitters. So when you buy something and there's a tenant in place, you will have to get, in many cases, an estoppel. And so the estoppel is essentially a document that says the tenant says there's no side deals, this is what the lease says, there's no other amendments. The landlord didn't lend you $2 million to pay the rent for the next.
Hiten Samtani (31:41)
Somewhere
buried in the least. This is kosher certificate basically.
Will Krasne (31:45)
pretty much. Onyx is essentially saying that the stoppables they got back were like, bullshit. It's a pretty big deal because part of their plan, ostensibly here, was borrow against the cash flows, sell off some of the the choice assets to get their basis down and bring the yield up. And that's how they're going to make their returns.
Hiten Samtani (32:06)
basically the John Gray Blackstone EOP strategy.
Will Krasne (32:09)
But to make that work, need to make sure that the leases say what they say, like that they're enforced, the rent's what it is and all those things. And so they're saying that didn't happen. And they're also saying that the seller told them explicitly, there are offers way above you guys. don't.
Hiten Samtani (32:12)
Lisa say.
Did any of the other buyers come to light? No. Okay.
Will Krasne (32:26)
Of course not.
And so I think essentially what happened is that Onyx didn't have money. I don't know that for a fact, just reading between lines. Onyx put up a $5 million deposit, which again, feels kind of low for A billion dollar deal. Yeah, for a transaction this magnitude. And this came to light because Copper's annual reports came out. They're trying to use two million worth of the deposit as their monthly cash payment to the shareholders. So that's why this came out.
Because at stake here is like that deposit's ours
Hiten Samtani (32:58)
Wait, they can take the money and deploy it as they...
Will Krasne (33:01)
They're saying you defaulted, you were not refundable. So yeah, that's our money now. And Onyx is filing suit against that.
Hiten Samtani (33:08)
Where do things stand now? These properties, are they maybe just less valuable than people thought?
Will Krasne (33:12)
I think that's right. These things, triple net in general is very susceptible to interest rates because you can't make it go up. And in this case too, you have very hard to repurpose real estate. We talked about how retail saves by mixed use development or adding residential. I'm like, you the Alamoana Mall. Yeah.
Hiten Samtani (33:30)
Is that the giant the one that got that monster CNBS recently? Yeah
Will Krasne (33:33)
in
Hawaii, but not where like JCPenney is. The stores are so big, they're so expensive to reposition. You gotta punch holes in the wall for windows if you're gonna use any other use. So they're like really not that valuable. It's one of those things where on a spreadsheet you can talk yourself into it, but in reality, maybe it's just not worth that much. And so Copper Pass Through Trust 4, or whatever it's called, is saying, why don't we just do a read? That's what we should do.
Hiten Samtani (33:56)
Wait, they're going to create a new vehicle now at this point?
Will Krasne (34:00)
sell it to the public markets. That's how we're going to pay off these.
Hiten Samtani (34:02)
If it were me, you know who I'd be calling right now? Ben Ashkenazi.
Will Krasne (34:05)
The Reubens?
And the retail real estate is littered with the carcass of many an enterprising investor and I think it's just claimed potentially two new names in Copper Passive Trust and Onyx.
Hiten Samtani (34:31)
That's it for the Promote Podcast this week. The British invasion might have started with the Beatles, but now it's firmly the domain of the Reuben Brothers. With the reets being sold for parts, one has teamed up with Apollo to change the narrative. And JCPenney's carcass is staying in the meat locker for now, as the would-be buyer and seller go at it in court.
Will Krasne (34:49)
We'll be back next week with more CRE Insider Goodness. Thanks again to our sponsors, Bravo Capital and Lone Bull.
Hiten Samtani (34:54)
You can find them at bravocapital.com and loneboss.com. I'm so excited to see you in a couple days. It's been too-
Will Krasne (35:01)
I know I've actually gotten taller
Hiten Samtani (35:04)
Alright, I'll see you on Wednesday.
Will Krasne (35:07)
Yes, and come see us live Thursday somewhere in Nashville.
Hiten Samtani (35:12)
somewhere in Nashville. All right, dude. Thank you. Ciao.
Will Krasne (35:14)
Thank you.